Physical natural gas for Friday delivery slipped in Thursday's trading as firming prices in the Marcellus were unable to offset losses seen in the Midwest, Midcontinent and Gulf Coast.
The NGI National Spot Gas Average fell 6 cents to $2.06 as weather forecasts continue moderate and next-day power prices weakened. The Energy Information Administration (EIA) reported the season's first withdrawal at 53 Bcf, somewhat stouter than market expectations, and prices initially staged a short advance, eased, but turned around to settle higher. At the close, January had added 1.6 cents to $2.181 and February gained 1.2 cents to $2.232. January crude oil added $1.14 to $41.08/bbl.
Short-term traders are cautiously optimistic January futures will at least hold steady. "The number came out right where we expected, and it came off a bit and rallied right back. That gives the market a little support," said a New York floor trader. "At least it held up and didn't rush down to $2.10 and fall behind. It traded at $2.14, held that and rallied right back up. If it breaks $2.22, you have to look at $2.30, but that is going to be tough. That whole gray area between $2.23 to $2.25 is going to be tough to get through.
"I like the play on the upside because it held. I would put a protective stop at $2.14 to $2.15," he said.
Before the EIA report release, traders and analysts were looking for a pull in the upper-40 Bcf lower-50 Bcf range, which would put the figure right in line with long-term averages. Last year, 42 Bcf was withdrawn and the five-year pace is for a 48 Bcf pull. ICAP Energy calculated a 47 Bcf decline, and industry consultant Genscape was looking for a 54 Bcf draw. A Reuters survey of 26 industry cognoscenti revealed a sample mean of 51 Bcf with a range from -24 Bcf to -66 Bcf.
Some saw a bullish surprise in play. "While 47-51 Bcf in net withdrawals would still look neutral to modestly supportive relative to a 42 Bcf decline a year ago and the 48 Bcf five-year average for the date, this could still be seen as a disappointment given the early November forecasts for a more intense cycle of cold," said Tim Evans of Citi Futures Perspective.
"With our model returning a somewhat more robust 60 Bcf net withdrawal, we see some chance of a minor bullish surprise but would anticipate only a limited price reaction given the more bearish intermediate-term picture," he said in closing comments Wednesday.
Other analysts also saw the potential for a surprise but for different reasons. "[L]et's not forget last week was a holiday week, and a holiday that also featured the first across-the-board draw of the season, too," said John Sodergreen, editor of Energy Metro Desk. "We don't think that has ever happened before. And total generation outages were up last week too...We see sparks flying at 10:30 Thursday morning -- just like last year, where we had a very fast 7-cent move in the first second following release. EIA came in at -22 Bcf (it was later adjusted) and the market was expecting a pull of -38 Bcf." Sodergreen's survey was looking for a 43 Bcf pull.
In physical market trading, mild New England weather forecasts along with a soft next-day power market prompted double-digit declines. Forecaster Wunderground.com predicted that Boston's Thursday high of 51 degrees would ease to 47 Friday before bouncing back to 51 Saturday. The normal high in Boston is 46 this time of year. Providence, RI's 59 high Thursday was seen sliding to 48 Friday before moving on up to 52 Saturday. The seasonal high in Providence is 47.
Gas at the Algonquin Citygate fell 31 cents to $2.75, and deliveries to Iroquois, Waddington dropped a nickel to $2.26. Gas on Tennessee Zone 6 200 L skidded 25 cents to $2.67.
Next-day power prices from Massachusetts to Indiana weakened. Intercontinental Exchange reported that on-peak power at the ISO New England's Massachusetts Hub fell $2.93 to $28.04/MWh and next-day power at the PJM West interchange retreated $1.72 to $31.22/MWh. At the Indiana Hub on-peak Friday power fell $2.38 to $27.00/MWh.
Differentials between Midwest points and the Marcellus continue to realign. Gas on REX Zone 3 at the Midwestern Pipeline interconnect in Edgar County, IL, shed 8 cents to $2.09 and deliveries to ANR at its Shelby County, IN, point dropped 7 cents to $2.10. Packages on Panhandle Eastern in Putnam County, IN, changed hands 8 cents lower at $2.10.
Marcellus points, on the other hand firmed. Gas on Dominion South added 7 cents to $1.34, and gas on Tennessee Zn 4 Marcellus rose a penny to $1.27. Transco-Leidy Line was seen 7 cents higher at $1.33.
Near-term weather outlooks haven't changed. Tuesday's National Weather Service six- to 10-day forecast showed a sea of red and brown (above normal to much above normal temperatures) from coast to coast, as did Wednesday's outlook.
Natgasweather.com reported that "Fresh mid-day weather data is streaming in and it remains in line with what we've been saying all week, which is it's not going to be nearly cold enough over the U.S. the next 12-13 days until stronger cold blasts begin pushing into the U.S. around mid-December, starting first over the West and then gradually spreading south and east. Although, more importantly, we continue to see signs colder temperatures will have an opportunity to bring stronger natgas demand going into the second half of December."