Physical gas for Tuesday delivery carried on with the kind of losses incurred in Friday for weekend trading, despite near-term temperature forecasts at eastern points expected to take a drop by midweek. Some eastern points were significantly higher, but the NGI National Spot Gas Average fell 6 cents to $1.64.
Futures traders saw the bottom drop out as forecasts once again reflected ongoing El Nino conditions and showed above-normal conditions out to the end of the month. Prices reached lows not seen since 2001.
At the close, January was lower by 9.6 cents to $1.894, and February had lost 9.1 cents to $1.959. January crude oil rose 69 cents to $36.31/bbl.
Futures traders weren't sure the selling was over. "There's not much keeping it up," a New York floor trader told NGI. "People are giving up on the scale down buying they were pursuing earlier.
"Underneath $1.86 I think you should find [technical] support at $1.81 to $1.83 and $1.74 under there. I don't think the market is going to free fall, but it could just grind lower. $1.894 is not a bullish close, and I think it works lower as people get out of positions, and then prices just move sideways to the end of the year."
Analysts contend that seeds are being sown for an eventual recovery.
"While Marcellus region pipeline expansion projects are likely to support periodic spurts of production growth in 2016-2017, other producing regions will face increased pressure from sub-$2.50 gas for much of 2016," said Stephen Smith of Stephen Smith Energy Associates. "We also expect ongoing low West Texas Intermediate prices to more visibly slow associated gas production. The net effect is that the average annual U.S. gas production growth rate for 2016 and 2017 should slow noticeably from the 5%-6% trend annualized growth of 2013-2014.
"Three other factors will also begin to tighten US gas markets: liquefied natural gas exports will grow by 2 Bcf/d by year-end 2017; Net exports to Mexico should increase by over 1 Bcf/d by 2017; and a large number of new methanol, ammonia and other plants requiring gas as a feedstock will be coming on-stream and this will create strong industrial gas demand growth in 2016-2017."
Near-term and longer-term weather forecasts turned sharply warmer over the weekend. Monday’s 11-15 day period forecast was several degrees warmer across the board, resulting in a -17.7 GWHDD loss for the CONUS [Continental United States] when compared to Friday's forecast," said WSI Corp. in its Monday morning report. "Total CONUS GWHDDs are now forecast to be 92 for the period.
"Forecast confidence is above average for the period due to good agreement between the models. Temperatures could run less anomalously warm over the East late in the period depending on short-wave/cut-off low pressure system progression."
Risk managers are standing aside the market for right now. Devo Capital Management’s Mike DeVooght in a weekly report to clients said the short-term weather outlook is calling for “moderate temperatures throughout much of the United States. Weak demand, along with record production may push natural gas prices even lower. Fundamentally, the market is very well supplied and until the need for natural gas increases, this trend could continue. On a trading basis, we will stand aside."
DeVooght recommended that trading accounts, end-users and physical market longs await further developments before entering the market.
Tom Saal, vice president at FC Stone Latin America LLC in Miami, in his work with Market Profile said he expected the market to test last week's value area at $2.106 to $2.026. Also on Saal's radar are value areas at $2.222 to $2.152, $2.337 to $2.264, and $2.557 to $2.465.
In physical market trading, near term temperatures in major population centers were expected to take a dive by midweek and power prices held steady.
Forecaster Wunderground.com predicted the Monday high in Boston of 48 degrees would rise to 59 Tuesday before dropping to 46 Wednesday. The normal high in Boston is 42. New York City's 62 high on Monday was seen sliding to 60 Wednesday before dropping to 53 Wednesday.
Some of Monday's gains were thought attributable to a market "reflex" as traders undercommited on weekend purchases and had to make up volumes with Monday for Tuesday buying.
"Some of that can happen," said a pipeline veteran. "It depends on what kind of interconnect you are talking about. If you are just transporting gas, the pipelines will make you take any shortfall out of storage, but if you are a power plant you can probably pull on it."
Gas at the Algonquin Citygate gained a stout 28 cents to $1.35 and deliveries to Iroquois, Waddington added 19 cents to $1.61. Gas on Tenn Zone 6 200L rose 40 cents to $1.46.
Major hubs were mostly higher. Gas at the Chicago Citygates rose 8 cents to $1.83, but deliveries to the Henry Hub shed 8 cents to $1.69. At Opal gas for Tuesday rose 19 cents to $1.98 and packages at the SoCal Citygate gained 15 cents to $2.29.