A few instances of flat to moderately higher pricing showed up in the West, but an overwhelming majority of the cash market continued to probe lower levels Tuesday as traders returned from Christmas holiday. Widespread mild weather and the extension of natural gas futures plunges into their third day Tuesday weighed heavily on cash quotes.
Losses ranged from about a nickel to $1.45 or so. Western and Midcontinent points tended to hold up most strongly, while the largest drops were concentrated in the Gulf Coast, Midwest and Northeast.
It's official now: daily prices that until last Friday had been at mostly substantial premiums to first-of-month indexes throughout December are now trading below index at all points. In many cases, particularly at Louisiana and Northeast points, current discounts to index are more than a dollar.
Chances of a cash rally Wednesday were very slim and none, and "very slim" was virtually DOA. Not only were forecasts bereft of any significant return of cold weather, but the screen chalked up its second dollar-plus plunge in three trading days Tuesday. The January natural gas contract, set to expire Wednesday, fell $1.261 to $11.022 after going below $11 at one point. Total screen losses from last Thursday through Tuesday are more than $3 (see futures story).
Current heating load is minimal with well above seasonal temperatures expected Wednesday in the West, Midwest and South, although the South is unlikely to repeat Tuesday's record-setting highs (date-specific) in some areas, The Weather Channel said. Temperatures will be near seasonal norms in some parts of the Northeast, it continued, but the rest of the region will have above normal readings.
Several pipelines exemplified the lack of current-burn demand with talk of potential actions to be taken against excessive receipts coupled with insufficient deliveries (see Transportation Notes). However, PG&E and SoCalGas ended high-linepack OFOs after Saturday, which likely was instrumental in the modest amount of firming at some western points.
Chicago was about 50 degrees Tuesday, "and that's unheard of for the end of December," a Midcontinent/Midwest marketer noted. He didn't see how cash could possibly rally before the end of month with so much warm weather all around. He considers the recent dive in prices to be good for the market, noting the political pressure that producers have been receiving in this year's high-price situation. But around the second week of January all political hell may break loose when consumers start receiving their December heating bills, he said.
The marketer said little if anything was going on in bidweek Tuesday because he felt like most January business has already been completed. He reported having a few people calling Tuesday "for little pieces of gas," but his company did essentially no new trading. However, negative basis numbers were tightening up, he said. "You would have expected that" with the three-day screen plunge continuing, he added, noting that one could buy January futures below $11 in Access trading Tuesday afternoon. The last January fixed price he saw for Nicor (Chicago citygate) was at $10.32 that morning.
For a producer who trades the Northeast, it was simple: "above normal temps, loads off, holiday week." It all added up to lower gas prices, he said, and the "Nymex crash" over the last three days should keep daily cash getting softer. He said citygate basis had move about 40 cents higher Tuesday from late last week due to the extreme screen softness. He thought producers would agree that a "correction" of too-high gas prices is a good thing, noting that they could still make a good profit on $11 gas.
The National Weather Service (NWS) has nothing to offer bullish gas traders for next week. In its forecast for the Jan. 2-6 period, the agency looks for above normal temperatures in virtually all of the U.S. except the extreme Southeast. Only the coastal section of the southern third of California is left out of NWS' prediction of above normal readings everywhere west and north of a line running westward along the Virginia-North Carolina border before veering to the southwest along the Tennessee-North Carolina border through northern Alabama and southern Mississippi into southeast Louisiana. The only area where below normal temperatures are expected is the Florida peninsula.
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