Cash Continues to Backtrack from Last Week's Rise
Despite the sharp change in market direction the past two
trading days, with prices falling as much as 12 cents at some
points Monday, there was no consensus on whether this is the
beginning of a lengthy slide or just a breather before another
The only areas to escape falling cash prices yesterday were the
Rockies and California, which were bolstered by a scheduled
maintenance at the Opal hub, where 100 MMBtu/d was removed from the
market until Thursday. Malin traded flat to Friday and San Juan
(non-Bondad) registered a gain to about $2.20.
As expected, cooler weather in the Midwest, Northeast and Gulf
Coast was cited as the main reason for the price drops. The
Northeast lost the most, as Transco Zone 6 fell to the mid $2.80s
after reaching $3.15 last Thursday. Traders said activity was light
and Canadian activity was virtually non-existent thanks to
yesterday's Civic Holiday. Michigan citygate markets were extremely
hard to find, causing one Houston marketer to speculate that the
long Canadian holiday spurred buyers to pick up Dawn supplies
Friday for four days rather than three.
One Midwest trader doesn't see the general price decline
continuing. "I don't see cash going away. During the last run-up,
we saw over 50 cents tacked on to prices. That's a pretty good
move. Now, it's cooled down, but I don't know anybody who is
turning off their air conditioners because the temperature fell
from 100 to 94 degrees. I think it is preparing for another run.
There has to be some settling down before that can happen, and this
small cool-down provided the perfect opportunity." Supporting his
theory is the six- to 10-day forecast, which calls for much of the
Northeast and Midwest to return to above-normal temperatures next
A Gulf Coast trader, however, is forecasting more declines to
come. He quoted Henry Hub prices trading in the low $2.50s. "I
don't think the strength the market gathered early last week can be
sustained," he said. "With relaxing generation loads, there is
nothing pushing prices up. I think it could go down another 20
cents before finding any reason to go up 5 cents."
One bearish source said he is looking for temperatures to
moderate soon, and without the electric generation demand, more gas
will be put into the ground. "The only wild card," he said,
"remains hurricanes, but there is nothing on the horizon yet."
August is the first peak month for the hurricane season, according
to the National Oceanic and Atmospheric Administration. While
expectations for an above-normal amount of powerful storms have
gone unfulfilled so far, they are not far from traders' thoughts.
"I'm looking for weak prices until mid-August, but I have a gut
feeling that a hurricane or two will cause some spikes after that,"
one Gulf Coast source said.
While bears think hurricanes are needed to lift prices, bulls
are pointing to this week's American Gas Association storage report
as a rallying point. "This Wednesday is the key," one trader said.
"Its no secret how hot its been this past week, and a lot of gas
was used to keep buildings cool." He estimated this week's report
would resemble last week's 41 Bcf injection and have a similarly
bullish impact on the market.
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