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East, West Coast Gains Almost Offset Producing Region Losses In Weekly NatGas Trading

Natural gas bulls were roaming East Coast and West Coast market zones in weekly trading, but Midwest market zones and most producing regions were squarely in the hands of the bears.

For the week ended June 23 the NGI Weekly Spot Gas Index fell a penny to $2.69 and the Northeast, Rocky Mountains, and California regions were the only ones in the black. Of the actively traded points the location showing the week's greatest gain was El Paso S Mainline with a rise of 69 cents to average $3.43, and the bottom of the leader board went to Empress with a drop of $C0.25 to $C2.23/GJ. An oppressive heat wave saw California adding the largest regional advance with a 24-cent gain to average $3.10 and South Louisiana lost the most dropping 9 cents to $2.80.

Regionally the Midcontinent skidded 8 cents to $2.62, the Midwest was only slightly better with a 7-cent decline to $2.76, and East Texas fell 5 cents to $2.85.

South Texas and Appalachia both lost 4 cents to $2.86 and $1.97, respectively, and the Southeast came in at a 3-cent decline to $2.89.

The Rocky Mountains added a penny to average $2.55 and the Northeast tacked on 9 cents to $2.62.

July futures on the week fell 10.8 cents to $2.929.

Thursday's trading saw the July futures contract taking an initial dip in early trading but quickly turned tail higher once the Energy Information Administration (EIA) reported a storage injection for the week ending June 16 that was slightly greater than what traders were expecting.

The EIA reported a storage build of 61 Bcf, about 3 Bcf greater than what the market was looking for, but futures managed to hold. The July contract on Thursday settled at $2.894, up one-tenth of a penny and August was unchanged at $2.915. August crude oil managed to stop recent hemorrhaging at least temporarily and rose 21 cents to $42.74/bbl.

Once traders had time to digest the storage figures July futures dropped to a low of  $2.855, but within a minute started to advance. At 10:45 a.m. on Thursday the July contract was trading at $2.942, up 4.9 cents from Wednesday's settlement.

Last year 63 Bcf was injected and the five-year average stands at a stout 82 Bcf. Heading into the report, Citi Futures Perspective calculated a 51 Bcf injection and Ritterbusch and Associates estimated a 67 Bcf increase. A Reuters survey of 22 traders and analysts showed a sample mean of 58 Bcf with a range of +50 Bcf to +67 Bcf.

"We were hearing a 58 Bcf number and after the number came out we are trading at the highs. Why? I don't know," said a New York floor trader.

"If you look at this market, it has been so depressed lately. We are still below $3 and that is the hurdle. It has to settle above that at least a couple of times to generate any upward momentum."

"The build for last week was more than the 55-58 Bcf consensus and so a minor bearish surprise," said Tim Evans of Citi Futures Perspective. "At the same time, however, we note the storage injection was less than the 82-Bcf five-year average for the date and so still confirms some tightening of supplies on a seasonally adjusted basis."

Wells Fargo Securities analysts lead by David Tameron called Thursday's storage report "neutral," but noted that the firm's undersupplied forecast remains intact. "The reported figure was 6 Bcf above consensus but 1 Bcf below last year and 19 Bcf below the five-year average of 80 Bcf," the team wrote in a post-storage morning note. "This data point provides further confirmation that the natural gas markets are at least 2 Bcf/d undersupplied."

If current weather forecasts hold true, Tameron's team expects a 116 Bcf cumulative injection over the next two weeks, which would bring the storage surplus over the five-year average down to just 189 Bcf.

Inventories now stand at 2,770 Bcf and are 324 Bcf less than last year and 207 Bcf greater than the five-year average. In the East Region 22 Bcf was injected, and the Midwest Region saw inventories rise by 22 Bcf also. Stocks in the Mountain Region were greater by 5 Bcf and the Pacific Region was up 7 Bcf. The South Central Region increased 5 Bcf.

By Thursday the searing heat wave over southern California and the desert Southwest was forecast to moderate and next-day gas prices plunged. Friday gas at Malin shed 2 cents to $2.66 and gas at the PG&E Citygate fell 4 cents to $3.15.

Packages at the SoCal Citygate for Friday delivery tumbled 62 cents to $3.37 and gas priced at the SoCal Border Average skidded 55 cents to $2.85. Gas on El Paso S Mainline dropped 93 cents to $2.88 and Kern Delivery was quoted 66 cents lower at $2.96.

AccuWeather.com forecast that Los Angeles high Thursday of 79 would rise to 81 Friday and slide to 80 by Saturday, right at the seasonal norm. Phoenix' toasty 113 high of Thursday was seen easing to 111 by Friday before climbing to 114 Saturday, 8 degrees above normal. Albuquerque's 102 Thursday high was predicted to fall to 97 Friday and 89 by Saturday, one degree below normal.

Tropical Storm Cindy made landfall along the Texas-Louisiana border about 3 a.m. CDT Thursday and was quickly downgraded to a tropical depression by 10 a.m. The impact on the natural gas market was likely to be short term demand reduction as temperatures cool and residents recover from power outages and other dislocations.

In Friday's trading weekend and Monday physical gas went begging as traders noted a well-supplied market and a trend to moderating weekend weather. Flat pricing in Texas and Louisiana was no match for hefty declines in the Northeast, Appalachia, the Rockies and California, and the NGI National Spot Gas Average tumbled 8 cents to $2.59.

It was once again a tale of two coasts on Friday with Southern California and Northeast points leading the charge lower. Futures were held to a miserly 5-cent range, but at the end of the day July had added 3.5 cents to $2.929 and August was up 3.6 cents to $2.951.

Eastern points tumbled as forecast energy usage over the weekend was seen falling sharply with Monday requirements far less than Friday. The New York ISO predicted Friday's peak load of 25,117 MW would decline to 21,269 MW Saturday and by Monday would reach only 20,534 MW. The PJM Interconnect expected Friday's maximum load of 46,278 MW to decline to 41,618 MW by Saturday and by Monday continue lower to 38,031 MW. ISO New England anticipated that Friday's peak load of 20,750 MW would fall to 18,500 MW Saturday and to 17,500 MW Sunday.

Gas at the Algonquin Citygate for weekend and Monday delivery skidded 62 cents to $2.37, and gas on Iroquois Waddington was down 26 cents to $2.63. Packages on Tennessee Zone 6 200 L were quoted at $2.39, down 55 cents.

Gas on Tetco M-3 Delivery came in at $1.81, down 15 cents, and gas bound for New York City on Transco Zone 6 shed 27 cents to $2.20.

Traders noted that much cooler weather was on tap for the weekend and next week.

"Much cooler air with temperatures more typical of mid- to late September will sweep across the Great Lakes and Northeast this weekend into next week," said AccuWeather.com meteorologists Friday.

"Temperatures will stay below average from later this weekend through the middle of next week," said AccuWeather.com  meteorologist Max Vido. "Highs typically range from the middle 70s to the middle 80s during late June. However, as the core of the cool air settles in, high temperatures will be held to the 60s over the upper Great Lakes, near 70 in parts of the Ohio Valley and the upper 70s across the Interstate 95 corridor of the mid-Atlantic."

Vido said some parts of the Midwest to central Appalachia "may challenge record lows established as far back as the early 1900s. Temperatures will dip into the 40s and lower 50s in much of the Midwest, and the 50s to the lower 60s along the Atlantic Seaboard early next week."

Other market points did not see the same rambunctious pricing.

Gas at the Chicago Citygate fell 2 cents to $2.69 for weekend and Monday delivery, and deliveries to the Henry Hub rose a penny to $2.86. Gas on Northern Natural Demarcation was flat at $2.60, and gas on El Paso Permian shed 4 cents to $2.54.

California prices took a breather on Friday. Gas at the PG&E Citygate changed hands 3 cents lower at $3.12, and deliveries to the SoCal Citygate fell 36 cents to $3.01. Gas priced at the SoCal Border Average shed 19 cents to $2.66, and gas on El Paso S Mainline gave up 17 cents to $2.71.

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July natural gas opened 2 cents higher Friday morning at $2.91 as near-term weather forecasts had called for basically normal temperatures, and near-term traders mulled bearish conditions for next week.

"Forecast changes were related to low pressure tracking out of western Canada in the early stages and toward the Midwest, with temperatures adjusted warmer in the East at mid-period but cooler in the low's wake late in the Midwest," said MDA Weather Services Friday in its isix- to 10-day outlook.

"Given model volatilities as it relates to this feature, confidence remains lower than usual for this lead time. In all, the forecast features near normal temperatures for most of the Eastern Half, with aboves focused in parts of the Interior West. While normal for the period, the East sees below normal temperatures early on and aboves on days 8-9."

Traders are looking for a spot to go long.

"We are keeping open a possible price drop to the $2.82 area while conceding that such a renewed decline will require some cooperation from the weather factor," said Jim Ritterbusch of Ritterbusch and Associates in a Friday morning report to clients. "Latest updates are generally indicating negligible change from about mid-week with much of the mid-continent now expecting normal temperatures later next week following a brief cooldown.

"This seemingly neutral temperature factor doesn't appear capable of sustaining price gains to above the $3 mark and as a result, we see some further price consolidation today mainly within the boundaries of yesterday's range."
Looking to the coming week, he said "adjustments to the one-to-two week weather views will largely determine price action. While some support could be forthcoming from a further expected contraction of around 15 Bcf in the surplus against five-year averages, the extended Fourth of July holiday weekend could provide a bearish offset.

"Overall, we are still sidelined in this market while we will be looking to probe the long side on a renewed pullback into the $2.84-2.87 zone in referencing August futures."

Other traders already are buying.

"I am a scale-down buyer all the way to $2.80," Alan Harry, principal with Harry's RE Trust told NGI. "If it breaks $2.80 I will have no choice but to liquidate. To me it looks like the lows are in. We have had four hits around the bottom all at the same level, and it looks like a quadruple bottom.

"By mid-August to early September I think we see $3.50-3.60. We may fall somewhat from that, but then I expect a seasonal pop up from there."

Near-term, however, analysts see the bulls on the defensive next week.

"Modestly bearish headwinds entering the weekend and into next week," said industry consultant Genscape Inc. "Production is ticking back up while demand projects to be stagnant to declining with temperate weather and the return of strong non-gas fired generation. On the demand side, burns look flat to declining while exports remain suppressed."

Genscape's estimate for Friday's power burn was down to a 12-year low of 28.8 Bcf/d, "with more declines expected. We have burns dropping to as low as 26.8 Bcf/d by Tuesday, and not getting back above 30 Bcf/d until next Thursday."

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