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NatGas Cash Firm, Yet Futures Slide Ahead Of High Risk Storage Report

Physical natural gas and futures prices parted company in Wednesday's trading as next-day gas generally followed the path of next-day power, and futures traders attempted to deal with a wide range of expectations surrounding Thursday's Energy Information Administration (EIA) storage report.

The NGI National Spot Gas Average added 7 cents to $2.04, but at Texas and Louisiana points, next-day gas traded about a dime higher. December futures were able to trade higher than Tuesday, but at the end of the day finished off 2.4 cents to $2.347 and January settled at $2.495, down 3.2 cents. December crude oil added 8 cents to $40.75/bbl.

Short-term traders view the market positively and are positioning for December futures to trade another 15 cents higher.

"The market is trying the $2.50 area and with a bullish [storage] number Thursday, we could see a rally," a New York floor trader opined to NGI. "I think we've seen the lows and I look for a short term rally. I like the market over $2.50. It's lower on the day, but it did try to push higher, which means I think it's going to make a short term rally."

A lot of eyes will be on the EIA natural gas storage report Thursday morning for the week ending Nov. 13. Not only will it be the first report to display storage data in the new five-region format (see Daily GPI, Sept. 30), but it is also expected to reveal an injection for the second week of November, a timeframe which over the years almost always shows a withdrawal.

The New York floor trader said he was hearing storage estimates in the plus-5 Bcf to plus-9 Bcf range, but a rally Thursday based on a bullish storage report is a real wildcard as estimates vary widely. A Reuters survey of 23 traders and analysts had an average 18 Bcf increase but the range was a gaping plus-5 Bcf to plus-50 Bcf.

Industry consultant Genscape Inc. is calculating an 8 Bcf build, and PIRA Energy figures on a 22 Bcf increase.

Natgasweather.com's Andrea Paltrinieri is looking for a thin build, citing lower supply in the form of natural gas production down to 70.3 Bcf/d and that, combined “with a reduction of imports from Canada, U.S. supply is pretty low compared to both last year and last month. Regarding demand, power burns came back to 23 Bcf/d, a very strong weather-adjusted number compared to last year.

“When more robust residential-commercial demand picks up, supply/demand balance is really going to tighten.” She’s expecting a 7 Bcf injection, “higher than last year's reading at minus 9 Bcf, but lower than market estimates at 18-19 Bcf."

Tuesday's market moves largely centered around changes to the more extended forecasts, and overnight models once again shifted, albeit with somewhat less intensity. MDA Weather Services in its report covering the next 11-15 days, said the forecast “trends warmer again...along the East Coast as a cold air mass diving into the Midcontinent will struggle to press eastward. This leaves the East slightly above normal with temperatures in the composite, with the warmest conditions coming in the early half before a return to more seasonal-like levels late.

"In response to a buildup in ridging over Alaska within the six-10 day period, a cold air mass over the Midcontinent provides below and much below normal temperatures from the West to the Central U.S., with the coldest departures being focused in the Rockies."

That cold and just how far it can make it east is the greatest uncertainty in the forecast. "Additional cold risk comes from model guidance from the West to the Midwest. Some models still allow for colder air to reach the East late, but this has been a struggle to progress forward in time," MDA said.

Next week MDA is predicting that highs in Chicago will range from 41 to 50, or from 5 degrees below normal to 7 degrees above. Dallas is expected to see highs in the mid- to upper-60s, or 6-10 degrees above normal.

According to market technicians, the market has made some progress advancing the argument that the $1.948 low posted in the closing days of the November contract is not likely to be seen in this market cycle.

According to United ICAP’s Brian LaRose, "the bulls have two hurdles that they must clear to confirm $1.948 marked a significant low. Those two hurdles are $2.441 and $2.723. Looking forward to the January contract, $2.441 has already been exceeded. We will be watching to see if the bulls can maintain the head start into expiration."

In the physical market, trading largely followed the path of next-day power. Intercontinental Exchange reported that on-peak Thursday power at the ISO New England's Massachusetts Hub slumped $1.53 to $26.72/MWh, and next-day power at the PJM West terminal added 51 cents to $28.57/MWh.

Gas at the Algonquin Citygate plunged 35 cents to $1.91, and packages at Texas Eastern M-3, Delivery were seen 3 cents higher at $1.52. Gas bound for New York City on Transco Zone 6 rose 14 cents to $2.09.

Gas at major market hubs was solid. Deliveries to the Chicago Citygate added 12 cents to $2.21, and gas at the Henry Hub rose a nickel to $2.10. Packages at SoCal Border Avg. points were quoted 7 cents higher at $2.29.

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