Gains in the Northeast, Rockies, and Appalachia could not counter losses in the Southeast, Gulf, Midcontinent and Midwest, and at the end of the day theNGI National Spot Gas Average fell 4 cents to $2.62.
Futures trading was more adventurous, with natural gas succumbing to a vortex created by tumbling crude, RBOB (reformulated blendstock for oxygenate blending) and heating oil contracts.
At the close, September had fallen 10.5 cents to $2.771, and October was off 9.9 cents to $2.818. September crude oil traded briefly below $40 below mustering a small advance to settle at $40.06, down $1.54 on the day.
"Across the board, everything got hit and natural gas was unable to escape," said a New York floor trader. "With everything getting hammered, natural gas was down just a bit. Throughout most of day natural gas was down about 4 cents, but then at the end of the day. We didn't get down to $2.75 so that is still a good level of support.
"The market is in a good place. It's closer to $3 than it is to $2."
Analysts don't see any fundamental change, but they see the market attempting to balance high power burns with what might be an unjustified valuation given short-term supply balances.
"We continue to see enough power sector demand to limit storage injections to less than the five-year average over the next few weeks," said Tim Evans of Citi Futures Perspective. "We continue to view natural gas prices in fundamental tensions between a supportive downtrend in the year-on-five-year average storage surplus and a valuation that may be too rich compared with a year ago, given that July 22 storage was still 436 Bcf (15.3%) higher than a year ago."
Despite the day's price pounding, oil and gas CEOs nonetheless appear optimistic. In a 2Q2016 conference call, Anadarko Petroleum Corp. CEO Al Walker said he was “now encouraged that a sustained $60 oil price environment is likely to emerge as we move into 2017” (see Shale Daily, July 27a).
“This price level should provide the necessary cash margins and resulting cash cycle improvements to encourage us to accelerate activity and achieve strong returns. In this scenario we would evaluate redeploying some of the incremental proceeds from asset sales toward our highest quality U.S. onshore assets later this year,” which include the Denver-Julesburg and Permian basins.
Range Resources Corp. CEO Jeff Ventura said during his company’s quarterly conference call that there was "a lot of natural gas demand coming [from] power generation. Long-term I think gas is going to continue to take market share. Gas exports to Mexico have surprised to the upside; I think that will continue to happen” (see Shale Daily, July 27b). Regarding liquefied natural gas exports, “we think at least 8 Bcf/d go, and that's already started up. A lot of petrochemical demand coming on in 2017, 2018."
At eastern points, steady next-day power pricing and forecast power loads were enough to keep next-day gas from moving too far too fast. Intercontinental Exchange reported that on peak power Tuesday at the ISO New England's Massachusetts Hub advanced only 24 cents to $30.86/MWh, and on peak power at the PJM West Terminal rose by a nominal $1.16 to $38.27/MWh.
Gas at the Algonquin Citygate rose 20 cents to $2.73 but deliveries to Iroquois, Waddington shed 2 cents to $2.84. Gas on Tennessee Zone 6 200 L added a plump 26 cents to $2.70.
Packages on Texas Eastern M-3, Delivery rose 6 cents to $1.46 and gas bound for New York City on Transco Zone 6 was down a penny at $2.03.
Next-day load forecasts also declined or made minimal advances. ISO New England forecast that peak load Monday of 18,100 MW would subside Tuesday to 17,950 MW before rising to 18,850 MW Wednesday. The PJM Interconnection said its peak load Monday of 44,611 MW would rise to 44,674 MW Tuesday before easing to 42,827 MW Wednesday.
Major market centers were also mostly lower. Gas at the Chicago Citygate fell 6 cents to $2.81, and deliveries to the Henry Hub shed 7 cents to $2.87. Gas on El Paso Permian came in a penny higher at $2.72 and packages at the PG&E Citygate were quoted 7 cents lower at $3.19.
Improved cash prices may be just around the corner, as forecasters are calling for elevated demand in major markets this week.
"Lower 48 demand will remain relatively well supported this week by persistent above-normal temps east of the Rockies," said industry consultant Genscape Inc. in a Monday morning report. The Rockies, Midcontinent and Midwest regions “are expected to see substantially hotter than normal temps early this week, and that system will make its way to the Northeast by week's end.
"Genscape's Rockies forecast has demand testing a summer-to-date high near 1.8 Bcf/d by Wednesday. Midwest demand will climb to a forecast peak at 9.5 Bcf/d by Thursday. Demand in Appalachia and New England is expected to gradually climb toward their respective peaks on Friday at 10.8 Bcf/d and 2.24 Bcf/d, respectively.
"Western demand markets, conversely, are setting up for a reprieve from heat with temps forecast to dip below seasonal norms in California and the Pacific Northwest, and return to seasonal in the Desert Southwest."
Risk managers are looking to use any market response to the warm weather as a hedge opportunity. The warmer than normal weather forecasts of last week into mid August have given the market a boost, according to DEVO Capital Management President Mike DeVooght.
"On a trading basis, we will continue to hold our current short producer hedges,” he said. “It is possible that the warmer than normal temperatures could help the market make another run at the $3 level. We would use rallies approaching the $3 level on the spot market as an opportunity to add to or initiate short producer hedges."
DeVooght currently is advising end users to stand aside, but trading accounts should sell November futures at $3.10-3.15 should the opportunity arise. Producers and physical market longs are advised to hold an August 2016-July 2017 $2.7 put strip and short a $3.5 call at flat or hold a $2.75 put and short a $3.75 call paying 7 cents.
In overnight Globex trading, September crude oil fell 50 cents to $41.10/bbl and September RBOB gasoline shed a penny to $1.3126/gal.