Overall Market Rebounds, But New England in Retreat
Weekend prices rose by 20-55 cents at nearly all points Friday as new forecasts indicated that extremely cold conditions in the Northeast and Midwest will extend beyond this week, and that January's worst conditions of all may begin around mid-month. The exceptions to overall bullishness were triple-digit declines at a few points serving the New England market.
Hyper-volatility was subsiding at many points, although Transco Zone 6-New York City was still seeing a price range slightly in excess of $6. As a western utility buyer commented, she planned to take it easy over the weekend because "we've been so busy these last couple of weeks that my head is still spinning. It feels like if prices don't fluctuate at least 40 cents, then it was a slow day."
The Midwest was getting a little milder Friday but remained very cold, said a regional marketer, citing a forecast of minus 2 degrees for Friday night in his city. He was not hearing of any wellhead freeze-offs in Michigan, saying they're usually protected against that. But the marketer expressed concern about a forecasting service's prediction of "a major cooldown for nearly the entire U.S. except Oregon and Washington after the 16th." The expected intrusion of a polar air mass would extend into even the southernmost states, he explained, "and that's when you get your freeze-offs in other production areas" such as the Midcontinent, Rockies and Southwest basins.
"I've been worried about what if all these financially strapped utilities are unable to buy supplies like they would normally if prices continue to spike," the marketer continued. "I'm trying to get our customers to go long as much as possible, because I'm afraid the gas delivery system is going to get strained before the end of the month."
The Weather Channel chipped in with its own bullish prediction Friday, saying, "The forecast looks very cold across the Northeast over the next two weeks."
In addition to the weather component, storage expectations likely played a role in Friday's rebound in the face of the normal weekend demand drop-off and generally milder temperatures across the southern third of the U.S., one source postulated. That's probably why Nymex traders shrugged off Thursday's sub-par pull reported by the EIA and sent February futures more than 20 cents higher, he said. Instead they likely focused on both the weather outlook and the fact that the next two storage reports are expected to feature massive drawdowns. Some people are talking about weekly withdrawals possibly as big as 200 Bcf, which would start eroding the year-on-year surplus quickly, he said.
Texas Eastern M-3 was one of the few Northeast points to resist a downturn. That likely was related to the pipeline's announcement that "no incremental IT-1 deliveries in Market Zone 3" were being accepted Friday, which may have put a crimp in expected supplies.
Asked about reports that some utilities had begun frantic searches for petroleum-based alternative fuels because of fears of "interruptions" in their natural gas supply, sources could provide little anecdotal evidence. A Gulf Coast marketer noted that he trades with several utilities, but was hearing no talk from them about trying to stock up on alternative fuels. However, another trader suspected there might be basis for such reports because of significant gains Friday in Nymex's heating oil, unleaded gasoline (at New York Harbor) and propane futures contracts for February. Crude oil was up only moderately, but still finished the day at the lofty level of more than $34/bbl.
A Calgary-based producer said he has been indexing all his deals lately "due to supply constraints on all our pipelines. We're scrambling to get back into alignment and have been feeding all our gas eastward; we're not sending any to Malin at all."
"Sometimes this volatility gets a bit wearing, but you like the money-making opportunities," a marketer observed. "Of course, it [volatility] also gives you the opportunity to make big losses."