Physical natural gas for next-day delivery and futures raced higher Tuesday, with concerns about coming weather pushing each to advances near a dime.
The physical market focused on near-term weather conditions and found above-normal temperatures across the country. Only two points followed by NGI showed losses, and most market points were up by double digits. The NGI National Spot Gas Average gained 9 cents to $2.77.
Futures traders saw more extended weather outlooks and drew a similar conclusion. At the close October had gained 11.3 cents to $3.047, the highest spot futures settlement in 16 months, and November rose 10.4 cents to $3.109. October crude oil rose 14 cents to $43.44/bbl.
Despite the day's strong futures move, traders were not thinking a long-term bull market. "Today was a nice little rally for natural gas. Once it dipped towards $3, that was a signal to buy," said a New York floor trader. "$3.08 to $3.10 should be short-term resistance."
Low $3 futures may be short-lived as analysts see a sustained price advance. "The market's latest rally, supported by a one-two punch of stronger-than-expected pipeline deliveries to Sabine Pass and a seasonally substantial CDD count, will be tested by the inevitable acceleration in refills as underscored by [Thursday's] reported relatively stout build," PIRA Energy said in Friday report. "Yet this month's more constructive fundamentals that finally lowered PIRA's end-October outlook more decidedly toward 3.9 Tcf, should set the stage for another sustained price advance that bucks traditional seasonal trends."
Next-day gas at major market centers rose as temperatures across the country were forecast to be about 10 degrees above normal. Forecaster Wunderground.com said New York City's Tuesday high of 84 would rise to 85 Wednesday before easing back to 84 Thursday, 10 degrees above normal. Chicago's high for Tuesday or 81 was forecast to reach 87 Wednesday before falling to all of 86 Thursday. The normal high in the Windy City at this time of year is 74. Dallas' expected high Tuesday of 98 was seen easing to 95 Wednesday and Thursday, 10 degrees above its seasonal norm.
Gas at the Chicago Citygate jumped 11 cents to $3.09, and deliveries to the Henry Hub added 11 cents also to $3.08. Gas on El Paso Permian changed hands 12 cents higher at $2.89, and packages priced at the SoCal Citygate rose 2 cents to $3.05.
Both Mid-Atlantic and Marcellus gas posted stout gains. Deliveries to Dominion South rose 14 cents to $1.17, and gas on Tennessee Zn 4 Marcellus added 14 cents as well to $1.15. Gas on Transco-Leidy Line was quoted 19 cents higher at $1.15.
Gas on Texas Eastern M-3, Delivery added 9 cents to $1.26, and gas bound for New York City on Transco Zone 6 jumped 27 cents to $1.80.
Weather forecasts turned warmer overnight, hinting at increased cooling load and higher consumption. "[Tuesday's 11- to 15-day] forecast is generally warmer than yesterday's forecast, especially over the eastern two-thirds of the nation," said WSI Corp. in a Tuesday morning report. "CONUS PWCDDs are up 1.3 for days 11-14 to 19.2. For the whole period CONUS GWHDDs are forecast to be 12.4.
"Forecast confidence is only near average today due to technical differences late in the six-10 day period and some conflicting signals. However, there is reasonably good large scale ensemble model agreement and less spread when compared to yesterday."
Those weather forecasts are prompting a tweaking of analysts' estimates of end-of-season supply levels. "While we have emphasized that CDD elevation at this time of the year doesn't pack the same punch as above-normal trends during mid-summer, it is apparent that 80 degree temperatures in the northern Midwest will be downsizing injections to the point that achieving last year's supply peak may prove out of range," said Jim Ritterbusch of Ritterbusch and Associates in a Tuesday morning note to clients.
"Forecasts for end-of-season peak storage have been shifting back and forth above and below last year's 3.94 level of late and the market now appears to be discounting a supply of around 3.9 Tcf come early November. The fact that the tropical storm factor has been unusually limited this year has proven unable to exert bullish price pressures given the reduced importance of GOM production. And while we had expected onshore output to lift in response to the summer upswing in the rig counts, it appears that stronger output rates have been fully priced."
Following the day's advance Ritterbusch said, "This market continues to garner strength from an extension of summer like temperatures that are boosting electric generation demand in the process of expectedly downsizing weekly storage injections into next month. This anticipated heat is forcing a reduction in peak supply estimates come early November and a upswing in supply to above last year's record level is now beginning to look out of reach.
"The fact that this market has advanced sharply this week without any significant assistance from the tropical storm factor attests to a solid underpinning in which additional price advances could easily develop."
Tom Saal, vice president at FCStone Latin America in Miami, in his work with Market Profile said to look for the market to test Monday's value area at $2.927 to $2.913 before moving on and testing $2.821 and $2.791. "Maybe" the market will test $2.705 to $2.665.
Saal also identified a rare Failed (to) Auction pattern "that creates a pricing target for traders to utilize. The Failed Auction price range is $2.904-2.905 (expect the market to trade at that price soon)," he said.