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NatGas Cash Off A Couple of Pennies; 'Last Hurrah' For Futures Bulls?

Hefty weather-driven natgas cash gains at eastern points were unable to counter broad losses at a majority of market points in Tuesday's trading.

Firm pricing at Appalachia and the Eastern Seaboard was overwhelmed by soft Rockies, California, Midcontinent, Midwest and Louisiana pricing. The NGI National Spot Gas Average shed 3 cents to $2.53.

Futures had difficulties of their own as a modest weakening of current pervasive heat along with some fund and managed account selling managed to push futures to double-digit declines. At the close September had dropped 13.3 cents to $2.615 and October was lower by 12.0 cents to $2.659. September crude oil fell 25 cents to $42.77/bbl.

Futures traders were forced to adjust their estimates of support and resistance. "We are now looking at $2.55 on the downside and you might get some resistance at $2.75 on the upside. Volume was 189,000 contracts and that's pretty big for natural gas," said a New York floor trader.

"Fund selling is likely in play given that the market fell as much as it did. The other [petroleum] markets were not as low compared to the natgas. Today was all about the natgas," he said.

Others see a glimmer of technical hope. "We have been cautiously bullish for some time and that has served us better than not," said Elaine Levin, vice president at Powerhouse LLC, a Washington DC-based trading and risk management firm.

"On a weekly basis $2.60 is support, and every time we have come down to the bottom of this range we have seen some buying come in. Today's trading had a little different feel since we took out Monday's low so aggressively and traded down so hard.

"As a bull, I am not happy with today's action at all,” she added. “If it is going to hold it should hold here but Mr. Elliott says that it could go another dime lower and still be corrective. I don't think you want to see this market go below $2.50. If we are going to get one more push up, the charts are saying this is our last hurrah."

Near-term market strength has been predicated largely on temperature forecasts. WSI Corp. in its Tuesday morning 11- to 15-day outlook showed a slight moderation in cooling requirements. "Above average period anomalies are forecast across a good portion of the West, as well as portions of the East and Northeast. The central and southern states will end up near to slightly cooler than average. [Tuesday's] forecast is a little cooler across the southern half of the nation and a touch warmer over the northern tier. CONUS PWCDDs are down 1.4 for days 11-14 to 56.8 for the period.

"The forecast could deviate in many directions, but downside risks are placed over the central and southern U.S. at this time. The West, mainly the Northwest could run warmer."

Traders see large spec accounts willing to play the short side of the market based on less weather-driven demand going forward. "Nearby futures have declined by about 14 cents or roughly 5% since Thursday's close as large non-commercial entries are aggressively re-entering the short side with the help of expected temperature moderation," said Jim Ritterbusch of Ritterbusch and Associates in a Tuesday morning note to clients.

"Although no below normal trends are in evidence other than small pockets in the southern region, traders appear to be focusing on only minor deviations toward the warm side that could prove capable of boosting storage injections appreciably through the balance of this month's EIA releases,” said Ritterbusch. “We look for Thursday's EIA report to show an upsized supply build of about 28 Bcf relative to last week's surprising 6 Bcf draw. And apparently the market is pricing in further increases as this month proceeds. In the background, production is coming in stronger on a year-over-year basis than previously expected as the summer upswing in oil rig counts is beginning to translate to some gains in associated gas production.

"At the same time, electric generation demand appears to be showing continued impact off of utility switching toward the lower priced coal. At the end of the day, the updated temperature forecasts appear to be shifting some perceptions back toward an end of season supply of around 4 Tcf that would represent a record stock. And while some divergence appears to be developing between this week's price selloff and a continued stout spread curve, we see limited possibility of sustainable inversion in the front switch short of a major storm event into the GOM."

In physical trading eastern points showed some modest strength as next-day power prices advanced. Intercontinental Exchange reported that on-peak power Tuesday at ISO New England's Massachusetts Hub jumped $7.12 to $44.67/MWh and on-peak power at the PJM West terminal rose $5.85 to $40.65/MWh.

Next-day deliveries of gas bound for New York City on Transco Zone 6 gained 18 cents to $2.12, and packages on Transco Zone 6 non-NY North rose by 16 cents to $2.05.

Marcellus points were mostly firm. Gas on Dominion South rose 3 cents to $1.30, and deliveries to Tennessee Zn 4 Marcellus gained 3 cents as well to $1.27. Gas on Transco-Leidy Line was quoted flat at $1.30.

Uncomfortable weather conditions were forecast for the East. AccuWeather.com predicted New York City's Tuesday high of 86 would ease to 84 Wednesday, but that translated to a 95 heat index. Thursday's high was expected at 89, 6 degrees above normal. Washington DC's 82 high on Tuesday was seen rising to 93 Wednesday, but that equates to a 103 heat index. On Thursday the high was predicted at 91, 3 degrees above normal.

Major market hubs eased. Gas at the Chicago Citygate fell a couple of pennies to $2.72, and gas at the Henry Hub changed hands at $2.75, 8 cents lower. Deliveries to El Paso Permian skidded 9 cents to $2.62, and gas priced at the SoCal Citygate fell 15 cents to $2.77.

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