In physical trading Monday for Tuesday deliveries the natural gas market managed to shake off a large chunk of Friday's 19-cent loss with double-digit gains posted at nearly all market points. TheNGI National Spot Gas Average rose 16 cents to $2.13, and forecasters were calling for cooler temperatures with readings coming in closer to seasonal norms.
Next-day power prices were also supportive at a number of locations. Futures rose largely as the result of forecasts of cooler temperatures next week. At the close, December had added 4.9 cents to $2.816, and January was up 4.1 cents to $2.978. December crude oil rose 82 cents to $44.89/bbl.
Major market centers made solid gains as "a cold frontal boundary" was expected to shift over the central third of the country on Monday, "while a Pacific system brings wet weather to the Northwest," said forecaster Wunderground.com in a Monday morning report.
Gas at the Chicago Citygate added a stout 14 cents to $2.26, and deliveries to the Henry Hub rose by 14 cents as well to $2.33. Gas at Opal changed hands 25 cents higher at $2.11, and gas at the SoCal Border Avg. jumped 31 cents to $2.25.
"A low pressure system will move eastward over south central Canada and the upper Great Lakes," Wunderground.com said. "A cold frontal boundary associated with this system will extend south southwestward from the northern Plains to the southern Rockies. As this frontal boundary transitions eastward, it will produce showers and thunderstorms across the central and southern Plains, as well as the lower Mississippi Valley."
Monday's high in Chicago of 66 degrees was expected to drop to 56 Tuesday and hold Wednesday. The normal high in Chicago this time of year is 52. New York City's Monday high of 53 was forecast to rise to 64 Tuesday before dropping down to 55 Wednesday, 2 degrees below normal.
Marcellus points firmed. Gas on Dominion South added 17 cents to $1.54, and deliveries to Tennessee Zn 4 Marcellus were quoted 16 cents higher at $1.53. Packages on Transco-Leidy Line gained 18 cents to $1.53.
Marcellus points may firm even more by year's end as operators report space on the 800 MMcf/d Zone 3 expansion on the Rockies Express Pipeline LLC (REX) from east to west is sold out (see Daily GPI, Nov. 3). An executive had said in September that 50 MMcf/d of space was still on the market (see Shale Daily,Sept. 14).
Tallgrass COO Bill Moler said last week that the REX enhancement, which would bring total east-to-west flows out of the Appalachian Basin to 2.6 Bcf/d, is fully booked based on deals reached during the third quarter. The project is on schedule to begin service by the end of the year.
Firm next-day power pricing on the West Coast made incremental purchases of gas for power generation more attractive. Intercontinental Exchange reported on-peak power at NP-15 for Tuesday delivery added $1.50 to $32.50/MWh, and power at SP-15 for Tuesday came in $3.89 higher at $32.80/MWh.
Gas at Malin gained 17 cents to $2.12, and packages at the PG&E Citygate rose by 16 cents to $2.59. Tuesday gas at the SoCal Citygate jumped 28 cents to $2.46, and gas priced at the SoCal Border Avg. Average improved by 31 cents to $2.25.
Futures rose as weather models for the nearterm dialed up a more seasonal outlook, but traders were somewhat dismissive of the move.
"$2.875 is a nice pop higher, but a failure to reach $2.88 to $2.89 is just a failed auction," said a New York floor trader "The market just kind of fell back on itself. To be really positive the market would have had to trade into the $2.88 to $2.89 area, and settle around $2.86. If anything, this may show the possibility of a little sideways movement going forward."
Near-term Monday overnight weather models turned sharply cooler, though the mild trend continued. Monday’s "forecast is much cooler than Friday's forecast across the East during the start of the period but is warmer late," said WSI Corp. in its Monday morning six-to 10-day forecast. As a result, continental U.S. gas-weighted heating degree days "are up 4.9 to 67.5 for the period. These are 24.4 below average.
"Overall forecast confidence is average but decreases during the end of the period as models begin to diverge with a pattern transition and potential storm system. The forecast has room to sway in either direction given the model spread and inherent uncertainty with a storm system during a changeable period." The European weather model "offers some downside over the Midcontinent, but the East and West Coast have some upside."
The Desk's Early View storage estimate for the week ended Nov. 4 revealed an average 55 Bcf from a sample of 13 traders. Last week 54 Bcf was injected and last year 55 Bcf was injected. The five-year average comes in at 38 Bcf.
Analysis of Friday's open interest figures in the CFTC Commitments of Traders report shows lingering longs despite the price decline of the last two weeks. Observers see a likelihood of further selling based on a high level of long exposure.
"Money managers sold 57,329 contracts of natural gas in the week ended Nov. 1," said Tim Evans of Citi Futures Perspective. "This further reduced the largest net long exposure since July 2014, but the market remains fairly overbought with risk of a further cycle of selling in our view.
Analysts are optimistic Cal '17 can recover from the recent price purge.
"We are watching for when the year-on-year storage surplus transitions into a deficit to trigger our move of risk bias from bearish back to bullish," Societe Generale analyst Breanne Dougherty said last Friday. "Our current balance outlook has that inflection materializing in December. Early winter weather remains a critical wildcard. That being said, our other high conviction call for a Cal '17 price average of $3.50/MMBtu is still very much intact."