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Both physical natural gas markets and futures posted robust gains in trading Monday. Next day delivery was seen at least a dime to 20 cents higher at most points, but the real story was the weather- and outage-inspired $9 jump at the SoCal Citygate that lifted quotes there to more than $12.
The NGI National Spot Gas Average rose 38 cents to $2.81, and although the big surges were seen in the California market, East Coast points were able to post $1 gains of their own.
November futures rose 8 cents at the beginning of Monday, and ended up gaining 7.6 cents on the day to $2.991. December gained 4.3 cents to $3.156. December crude oil added 6 cents to $51.90/bbl.
In Southern California, “gas prices will be pressured not only by the increased generation” due to cooling demand “but planned pipeline maintenance joining already in progress restrictions from unplanned events,” said Genscape Inc. in a note to clients.
Restrictions on the PG&E Baja Path because of maintenance had cut supplies to Southern California, and planned maintenance were expected to cut flows from Topock on El Paso to zero beginning Tuesday and ending Oct. 30. Those flows have been averaging 247 MMcf/d, according to Genscape.
Gas for Tuesday delivery to SoCal Citygate soared $9.00 to $12.57 and gas priced at the SoCal Border Average rose $1.29 to $3.98. Kern Delivery was quoted at $3.51, up 82 cents and PG&E Citygate added 16 cents to $3.29.
At the heart of the soaring prices are temperatures in Southern California expected to hit triple digits through Wednesday. AccuWeather.com forecast that the Monday high in Los Angeles of 102 would hit 103 Tuesday and 100 on Wednesday. The normal high in Los Angeles this time of year is 78. Riverside, CA was anticipated to see a Monday high of 104 reach 103 Tuesday and 101 Wednesday, 21 degrees above normal.
California’s grid operator forecast that peak load Monday of 36,079 MW would rise to 37,895 MW Tuesday.
Next-day peak power prices jumped as well. Intercontinental Exchange reported that on-peak Tuesday power at NP-15 rose to $104.40, up $38.42/MWh and peak power at SP-15 gained $42.79 to $120.90/MWh.
Other market points posted solid gains as well. Gas at the Chicago Citygate added 34 cents to $2.98 and gas at the Henry Hub rose 17 cents to $2.94. Packages at Transco Zone 4 changed hands 16 cents higher at $2.89 and gas on El Paso Permian gained 28 cents to $2.69.
Deliveries to the Algonquin Citygate rose 37 cents to $2.87 and gas delivered to Tennessee Zone 6 200 L was quoted 47 cents higher at $2.89. Gas on Tetco M-3 Delivery rose 33 cents to $1.18 and gas headed for New York City on Transco Zone 6 vaulted $1.22 to $2.88.
Futures traders continue to like the market. "I like the market to go higher," said President John Woods of J.J. Woods and Associates. “I like the market higher if only we are going into the season and it’s going to happen virtually overnight. We've got 10 days of cold weather, and I think the market is positioning itself for that.
"You are definitely going to have weather and at below $3, the risk/reward favors higher prices. Where are you going to go? $2.77 like we did a couple of days ago. Then you are essentially saying winter is over. Below $3 you have to be a bull.
"I think traders are going to look at that $3.15 to $3.17 area , but it won't be much of a stumbling block. The next mark on this market is $3.25 to $3.27."
Risk managers are eyeing the December and January contracts for a long market entry.
"Natural gas continues to trade at lower levels, as we continue to see builds in storage this time of year," said DEVO Capital Management President Mike DeVooght. "We will be watching natural gas closely, looking for an increase in demand going into heating season, however we may have a few more weeks of lower prices before we get a demand increase.
"On a trading basis, we will be looking for a chance to get long if the December and January contracts trade below $3. Our target to establish producer hedges is the $3.50 for the winter strip," he said.
Behind the gain in the futures was a change in the weather outlook in the six-to-10 day and 11-15 day period.
The “big story” Monday morning was “the late six-to-10 day into the early 11-15 day rolling forward cooler over the weekend, thanks to stronger upstream high pressure ridging around the Alaska area, but sustainability continues to be suspect," said Commodity Weather Group President Matt Rogers. "Our outlook...also features some modest midcontinent cooler changes in the short range with slightly warmer West Coast adjustments. The six-to-10 day sees the biggest cooler changes in the middle third of the U.S. with a slightly warmer West Coast.”