Physical natural gas for Tuesday delivery recovered only a portion of Friday's 21-cent drop to $2.57, as a wide number of points recorded gains on Monday and were able to offset double-digit losses in the Northeast. The NGI National Spot Gas Average rose 10 cents to $2.67.
Weakness in next-day power prices helped contribute to the demise of New England prices, but in the Mid-Atlantic and Marcellus, traders found slightly higher quotes as power loads were forecast higher.
Futures continued higher, with October settling at $2.997, up 4.2 cents, and November also was up 4.2 cents at $3.055. November crude oil bounced higher adding $1.45 to $45.93/bbl.
Risk managers used last week's $3-plus spot futures to initiate short hedges.
Early last week, "the gas market spiked higher on short covering and speculative buying when the $3 level was broken on the spot contract," said DEVO Capital President Mike DeVooght. "The weekly storage number came in close to expectations and failed to be a market mover. We continue to feel a large part of the recent rally can be attributed to the funds liquidating a short position that has been in place for the past couple of years.
"On a trading basis, we reached our target levels ($3.10-3.15 basis November) to take a short position for speculators and to establish producer collars (buy puts and sell calls) with floors in the $2.50-2.75 range and ceiling in the $3.75-4.00 range," he said in a Monday morning note. "Commercial hedgers are net short about 100,000 futures contracts, and they sold last week as prices rallied," said FCStone Latin America Vice President Tom Saal in Miami. "They have hedged quite a bit."
Saal said he thought producers were now hedging in greater volumes because of lending requirements imposed by banks, but "the appetite for risk is still there."
Longer term, weather forecasts are taking something of a weak turn. EnergyGPS in a Monday report likened upcoming October weather to a parody of the book and movie, "The Hunt for Red October," based on Cold War submarine warfare between the Soviet Union and the United States.
"This year's 'hunt for red October' is based off a warm weather front that is in the forecast for the month," said EnergyGPS. "This is usually a time for the colder fall-like weather to set in and heating demand starts to be a factor.
"So far, that does not look to be the case as the weather pattern has shifted into moderate temperatures across the country over the past three-four days and will continue on through the first week of October. A good example of the shift in weather resides in the PJM peak load forecast over the next few days."
EnergyGPS showed PJM’s peak load Friday of 119,150 MW dropping to 93,531 MW Monday and trending lower from there.
"This type of load reduction is seen across the entire country east of the Rocky Mountains. Another example is ERCOT, where temperatures are coming off pretty hard after another hot, humid weekend in Houston."
Even with the falling power demand, weather forecasters maintain that heating load is about to overtake cooling load.However, the overall effect doesn't look to be that strong.
"Cooler changes were more common than warmer ones in the short- to medium-range updates [Monday] morning for different parts of the U.S., leading to some offsetting small demand losses and gains, depending on which side of the demand coin each is located during this transitional period,” said Commodity Weather Group President Matt Rogers.
"This is the week when national heating demand overtakes cooling demand. The bottom line, though, is that demand continues to run relatively lower than normal, and today's changes are in the slight loss direction versus Friday.”
Pipeline operators appear to be taking the opportunity to get work done.
"This week features a heavy maintenance schedule, with several events capable of causing flow disruptions," said industry consultant Genscape Inc. Genscape analysts had identified a whopping 230 events expected to occur in the next few days. To make sense of it all, analysts "assess the potential impact of each one and grade it based on severity to flows, with a '1' having no impact, and a '5' being an event that will completely shut off or severely diminish flows.
"Of the 230 listed events, seven are ranked with a 5 and six are ranked at a 4 (major impact to flow)." They noted in particular continued restrictions on Algonquin, work on Tetco's 26-inch diameter line, El Paso Keystone and Westcoast in British Columbia.
Elsewhere in the physical market, New England prices weakened as next-day power prices softened. Intercontinental Exchange reported that on-peak power Tuesday at the ISO New England's Massachusetts Hub fell $6.63 to $27.57/MWh, and next-day power at the PJM West terminal skidded $2.62 to $30.80/MWh.
Gas at the Algonquin Citygate fell 14 cents to $1.78, and gas on Iroquois, Waddington shed 28 cents to $1.82. Gas on Tennessee Zone 6 200 L was quoted 17 cents lower at $1.68.
In the Mid-Atlantic, steady to higher forecast loads helped boost quotes. ISO New England forecast peak loads Monday of 15,100 MW would rise to 15,730 MW Tuesday before easing to 15,290 MW Wednesday. The New York ISO predicted peak load of 18,889 MW Monday would climb to 19,161 MW Tuesday before advancing to 19,455 MW Wednesday.
Texas Eastern M-3, Delivery gas added 9 cents to 80 cents, and gas bound for New York City on Transco Zone 6 gained 33 cents to $1.10.
Marcellus points managed to pull off modest gains, but still hovered well under $1. Gas on Dominion South was quoted 3 cents higher at 74 cents, and deliveries on Tennessee Zn 4 Marcellus added a dime to 77 cents. Gas on Transco-Leidy Line gained a couple of pennies to 76 cents.
Major market hubs were mostly higher. Gas at the Chicago Citygate gained 4 cents to $2.99, and deliveries to the Henry Hub added a penny to $3.05. Gas on El Paso Permian was quoted 1 cents higher at $2.84, and gas priced at the PG&E Citygate gained 9 cents to $3.55.