Physical natural gas for Tuesday delivery posted solid gains in Monday's trading, led by a supportive power environment and an improved screen.
Gains in the Gulf, Texas, and Northeast helped offset a weak Midwest and Midcontinent, and the NGI National Spot Gas Average gained a nickel to $1.64. Eastern points surged on average close to 30 cents.
Futures opened weak but managed to climb higher, and at the close April had risen 4.2 cents to $1.848 and May was higher by 5.4 cents to $1.936. May crude oil shed 7 cents to $39.39/bbl. April futures expire Tuesday.
With the expiration of the April contract and May assuming front-month status, the market will undergo a structural shift to the upside.
“The May contract settled near its highs, as did the April, and we will now be changing levels,” said a New York floor trader. “Once we get into the May, $2.00 will be resistance and $1.85 support. In spite of the day's gains the market does not have a feel that a broad move higher is imminent.
“You do have shorts in here and there is short covering that comes in here every once in awhile, and we haven't seen $2 in the spot month in a while. We'll have to see how hot the summer is, but to me there doesn't seem to be any upward pull of any significance.
“Even if we trade 10 cents to 20 cents higher compared to where we used to be, that is really insignificant. We are gaining a few cents every month due to the contango, but that is all that is happening here.”
In physical trading, market hubs advanced, aided and abetted by higher next-day power prices, although weather forecasts continued mild. Intercontinental Exchange reported on-peak next-day power at the ISO New England's Massachusetts Hub rose $3.03 to $22.41/MWh, and at the PJM West terminal on-peak power rose a stout $6.73 to $30.55/MWh.
At the Algonquin Citygate, next-day gas added 27 cents to $1.56 and gas bound for New York City on Transco Zone 6 gained 44 cents to $1.56. Gas priced at Texas Eastern M-3, Delivery rose 26 cents to $1.37.
Gas at the Algonquin Citygate is likely to be on a firm footing for several months. This coming weekend, Algonquin Gas Transmission will begin planned maintenance at the Stony Point Compressor station, which is expected to reduce throughput flows by nearly 0.2 Bcf/d, according to a report by industry consultant Genscape Inc.
“The maintenance taking place from April 2-5 is only the beginning of compressor capacity restrictions this summer, which will dramatically reduce the throughput on Algonquin's system,” Genscape said. “Operational capacity is currently 1.5 Bcf/d and will get knocked down to 1.2 Bcf/d on Saturday, April 2. Average flows through Stony Point over the past 14 days have been 1.44 Bcf/d.
“After the opening maintenance work has been completed, Algonquin expects to initiate cleaning tool runs on April 6-8. The schedule offers a few days without any capacity limitations before moving into more restrictive maintenance work between Stony Point and Oxford Compressor stations.”
The differential between well-supplied Marcellus points and receipt points to wider Midwest markets narrowed. Next-day gas on Dominion South rose 21 cents to $1.31, and deliveries to Tennessee Zone 4 Marcellus gained 17 cents to $1.22. Gas on Transco-Leidy Line also tacked on 19 cents to $1.28.
Downstream on the REX Zone 3 East to West expansion, market interconnects showed only nominal gains. Gas at the Moultrie County, IL interconnect with NGPL added a penny to $1.68, as did gas at the junction with Midwestern Pipeline in Edgar County, IL. Gas at the interconnect with Panhandle Eastern in Putnam County, IN gained 3 cents to $1.69.
Near-term temperature forecasts called for readings well above normal at eastern market points. Wunderground.com forecast that Monday’s high in Boston of 43 degrees would rise to 51 on Tuesday and to 56 on Wednesday. The normal high is 49. Philadelphia's 65 high reading Monday was seen easing to 57 Tuesday before making it to 60 on Wednesday, 5 degrees above normal.
Risk managers see no need to enter the market just yet but are looking for a warm summer. Devo Capital President Mike DeVooght, in a weekly report to clients, said the Energy Information Administration storage report last week “showed a smaller than expected draw. El Nino produced a warmer than normal winter, and there is a good chance we could experience above-average temperatures this summer.
“An anticipated warmer summer, along with short-covering, has helped the natural gas market to rally over the past couple weeks. On a trading basis we are standing on the sidelines for now.”
Commodity Weather Group President Matt Rogers said the near-term weather outlook has “moderated yet again. It is a story we all know far too well. Whenever the pattern starts to look more constructive for more significant cooler to colder air transport, we tend to see it ultimately underperform expectations and underperform duration estimates.
“The cooler to colder period that was lurking in the 11-15 day last week is now sitting cleanly inside the six-10 day focused toward the first days of April, and we are already tracking a re-warming pattern situation for the latest 11-15. A combination of warmer short-term conditions this week and a faster rebound warmer by the late six-10 day into the 11-15 day contributes to bigger demand losses compared to the forecast before the three-day holiday weekend.”
Analysts are estimating a storage draw report this week about in line with historical averages. Energy Metro Desk, in its early view survey of 10 traders and analysts, last Friday compiled an average 20 Bcf withdrawal. Last year 10 Bcf was withdrawn and the five-year average is a 22 Bcf pull.
Tom Saal, vice president at FCStone Latin America in Miami, in his work with Market Profile expected the market to test last week's value area at $1.868 to $1.810.