At first glance physical natural gas markets seemed reasonably well-behaved Monday. The NGI National Spot Gas Average was flat at $2.72. Pervasive weakness from the Southeast to the Midwest, Midcontinent, Texas and Louisiana was readily offset by higher prices in the Northeast and California, particularly southern California.
Energy demand in California soared as temperatures rose, and the power grid operator reported forecast peak loads approaching record levels. Futures could have cared less. A change in the longer term weather outlook over the weekend sent prices tumbling. At settlement July had plunged 14.3 cents to $2.894, a new 3 month low, and August came in down 14.3 cents as well at $2.917. July crude oil shed 54 cents to $44.20/bbl.
California energy officials warned Monday of the chances for potential grid impacts from the state's first sustained heat wave.
Next-day gas prices in southern California soared as energy demand approached record levels. CAISO reported that peak demand Monday of 45,588 MW would rise to 47,841 MW Tuesday. Record load stands at 50,270 MW reached in July 2006 in a heat storm.
CAISO reports 71,079 MW maximum installed capacity. No alerts or warnings have been issued.
Next-day gas at the PG&E Citygate eased 3 cents to $3.14, but gas at the SoCal Citygate vaulted 57 cents to $3.82. Gas at the SoCal Border Average jumped 42 cents to $3.32, and gas on El Paso S Mainline surged 81 cents to $3.70.
Peak next-day power prices also rose. Intercontinental Exchange reported on-peak Tuesday power at NP-15 rose $6.01 to $59.60/MWh and power at SP-15 added $5.35 to $57.78/MWh.
Forecast temperatures were expected well above seasonal norms. Wunderground.com reported that Monday's 82 high in Los Angeles would climb to 84 Tuesday and reach 87 by Wednesday, 15 degrees above normal. San Diego's 77 high Monday was seen rising to 78 Tuesday and 79 by Wednesday, 8 degrees above normal.
Not to be outdone the East Coast posted some impressive weather-driven gains of its own. Wunderground.com predicted Boston's 85 high Monday would fall to 83 Tuesday and 80 by Wednesday, 3 degrees above normal. New York City was predicted to see its high Monday of a humid 87 ease to 84 Tuesday and Wednesday, 4 degrees above normal.
Gas at the Algonquin Citygate rose 23 cents to $2.65, and gas on Iroquois Waddington was quoted 23 cents higher at $2.79. Gas on Tennessee Zone 6 200 L jumped 23 cents to $2.64.
Other market centers floundered. Gas at the Chicago Citygate fell 7 cents to $2.77 and deliveries to the Henry Hub shed 10 cents to $2.86. Gas on Dominion South was unchanged at $1.87 and parcels on Panhandle Eastern changed hands 8 cents lower at $2.61.
[Subscriber Notice Regarding NGI’s Market-Leading Natural Gas Price Indexes]
July natural gas opened 14 cents lower Monday morning at $2.90 as overnight weather models forecast much more moderate temperatures for the Midwest.
"This June has been enormously difficult to forecast thanks to a highly variable pattern," said Matt Rogers, president of Commodity Weather Group. "A very cool start transitioned to a hot middle and it is now flipping back cooler before month's end."
The general weather theme of greater than normal temperatures for June is taking a hit. "The models have struggled with both sides of this equation with so many moving parts. For this morning, they at least agree on the coolest 6-10 day anomalies in the Midwest, but they vary on intensity with the European being the strongest and American weakest again (while some heat lingers along the East Coast). The 11-15 day continues to be a big battleground though with the European and Canadian so variable and mixed with their members that the whole nation is close to normal on the means."
AccuWeather.com forecasts that next week high temperatures for Chicago and Detroit will be between the mid 70s to mid 80s, right at seasonal norms.
Near term, however, major population centers are expected to see above-normal cooling loads. The National Weather Service forecasts that for the week ended June 24, New England will see 57 cooling degree days (CDD) or 38 greater than normal. The Mid-Atlantic should experience 64 CDD or 31 above its normal seasonal tally, and the greater Midwest from Ohio to Wisconsin is expected to endure 44 CDD or 5 greater than normal.
Short term traders say the market is pointed to the downside. "It still feels heavy to me and I think there is more to go on the downside," said a New York floor trader. "I look for a push to $2.81 to $2.83."
Risk managers see the likelihood of lower prices. "Natural gas settled slightly lower after trading in a two-sided choppy range for most of the week," said Mike DeVooght, president of DEVO Capital in a weekly note to clients. "Mid-week, natural gas broke to test a key support level ($2.90). When support held, natural gas rebounded when the weekly storage number showed a smaller than anticipated injection.
"On a trading basis, we still feel there is a good chance of testing the $2.80-$2.90 level on the spot market in the next few weeks. We will continue to hold our current positions."