Physical natural gas for Tuesday delivery took it on the chin in Monday's trading as a weak futures open, above-normal temperature forecasts in the East and Midwest, and a lackluster power sector all combined to pressure prices lower.
The NGI National Spot Gas Average fell 11 cents to $2.06, but heftier declines in the Gulf Coast, Midwest and Midcontinent readily offset more moderate losses in the Northeast, Rockies and California. Futures opened sharply lower and never looked back as overnight weather models became more temperate. At the close, March had dropped 14.6 cents to $2.152 and April was off 10.6 cents to $2.226. March crude oil reverted to its old ways losing $2.00 to $31.62/bbl.
If more moderate medium-term temperature forecasts were not enough, insult was added to injury in the form of next-day forecasts calling for temperatures as much as 18 degrees above normal in the Midwest. AccuWeather.com predicted Monday's high in Chicago of 45 would climb to 46 Tuesday before easing to 40 on Wednesday. The normal early February high in Chicago is 32. New York City's 59 high on Monday was seen easing to 47 Tuesday, but making it back to 57 on Wednesday, 18 degrees above normal.
Next-day gas on Alliance shed 11 cents to $2.19, and deliveries to the Chicago Citygate changed hands 9 cents lower at $2.20. Gas at Joliet was seen 11 cents lower at $2.19, and gas on Consumers was quoted down 12 cents at $2.19. Packages on Michigan Consolidated traded 11 cents less at $2.20.
Next-day peak power prices were mostly lower. Intercontinental Exchange reported Tuesday on-peak power at the Indiana Hub fell 33 cents to $24.02/MWh, and next-day power at the PJM West terminal rose 25 cents to $25.56/MWh. Next-day power at ISO New England's Massachusetts Hub, however, fell $3.76 to $24.20/MWh.
Forecast power loads were equally uninspired. ISO New England forecast Monday's peak load of 16,630 MW would rise to 16,850 MW Tuesday before subsiding to 16,700 MW Wednesday. PJM Interconnection predicted Monday's peak load of 35,623 MW would rise to 36,687 MW Tuesday before slipping to 34,342 MW Wednesday.
Major hubs outside the Midwest were also lower. Gas at the Algonquin Citygate fell 17 cents to $2.17, and parcels at the Henry Hub came in 7 cents lower at $2.18. Deliveries on El Paso Permian fell 8 cents to $2.13, and gas at the SoCal Citygate was quoted 9 cents lower at $2.39.
Weather model uncertainty and a softening supply-demand balance kept futures bears energized. "The entire forward curve is plunging, but the front contract is underperforming the back end of the curve due to less intense cold over the four- to eight-day period compared to Friday's forecasts," said Natgasweather.com's Andrea Paltrinieri.
"Moreover, there's some uncertainty about the duration and the location of the frigid shot over the 11-15 day period given that the intensity looks again strong and favoring very good heating demand. This moderating weather outlook for late this week and weekend comes along with a bearish supply-demand balance where production has averaged above 72 Bcf/d during the weekend (72.2 Bcf/d) before dropping back to 71.7 Bcf/d on Monday, and power burns are also weak at 22.6 Bcf today." If there is going to be any sustained price rally, a prolonged period of cold/frigid weather will be necessary to offset a weakening supply-demand balance, she said.
WSI Corp. in its Monday morning outlook said, "[Monday's] six-10 day period forecast is sharply warmer or not as cold as Friday's forecast across the north-central and eastern U.S. The West is colder. CONUS GWHDDs are down 16 and are now forecast to be 131.8. Forecast confidence is a little below average. Model inconsistency and uncertainty during transitional patterns are limiting factors, but there is still confidence that a colder pattern will emerge by the end of the period.
"The forecast over the eastern two-thirds of the nation has room to waver in either direction as models are struggling with the evolution of multiple disturbances within a transitional period. However, the greatest risk is to the colder side."
In a weekly report to clients, Mike DeVooght, president of DEVO Capital Management, said last week's rally was not enough to implement short hedge positions. "Natural gas closed higher across the board. After trading in a tight range for most of the bidweek, gas rallied at week's end. Colder temperatures in the eastern half of the country, starting next week, helped to spark the rally. The weekly storage number came in with a slightly bigger draw than anticipated. Also supporting the gas market has been the steady decline in open interest as the shorts continue to unwind their short position.
"On a trade basis, we have been looking for a rally as an opportunity to establish short hedges. The recent rally fell short of our target levels of $2.60-2.70 on the spot market."