Physical natural gas prices rose an average of 9 cents overall Monday, led by healthy gains in constrained Marcellus Shale points and a buoyant, weather-driven screen. All points were in the black, but East and Northeast points led the charge higher in some cases by double digits. Midwest and Midcontinent locations were higher by about a nickel.
Futures scored their largest gain since mid-July. At the close September had gained 8.0 cents to $3.310 and October was higher by 7.8 cents to $3.335. September crude oil gained 14 cents to $106.11/bbl.
Just when forecasters thought the cool trends in the East and Midwest were a lock, things changed. In its morning six- to 10-day outlook, Commodity Weather Group (CWG) reduced the exposure to below-normal temperatures to a ridge bounded by Virginia, Missouri and Florida. Above-normal temperatures were predicted in a fairway from Minnesota to Wyoming to Arizona on the east, and bordered on the west by the Pacific Northwest.
"The coolest forecast period for the Midwest and East is the one-five day as an impressive cool push surges through these areas as well as the South in the current workweek," said CWG President Matt Rogers. "The moderation behind this cool push continues to be stronger than forecast back on Friday, leading to some general [energy] demand gains.
"The pattern type still favors the warmest heights over Canada, but the proximity in southern Canada now leans the Midwest and East warmer too. The deep South leans toward the seasonal to cool side now for the six-15, including the previously hot Texas. In the West, some hotter changes are noted in the interior (especially Southwest), but California heat is still on the marginal side (low 90s Burbank and some mid 90s Sacramento at best mostly in the six-10 day)."
Some see Monday's weather-driven advance as a continuation of Thursday's gains, when September futures traded down but closed higher on the day.
"The market has been in a short covering rally since the reversal day on Thursday," said Energy Management Institute principal Dominick Chirichella. "Recall shortly after the inventory report was released [last Thursday], the market made a new low only to end Thursday's trading session near the highs of the day.
"That was a supportive technical pattern for natural gas and has helped to propel prices back past mid-range and is now closer to the upper end of the trading range that has been in play for the last eight trading sessions. For now, the market is a positive from the technical side of the equation but will need true fundamental support for prices to make a major break to the upside."
Physical traders saw business as usual, with a heavy dose of maintenance.
"Our power customers were buying today, and we just saw a big run up in Marcellus gas," said a Northeast marketer on Monday. "I think a lot of today's run-up is people buying for storage after not buying on Saturday/Sunday because the loads weren't there. That kind of ran up the intra-day market, and the screen being up didn't hurt either.
Next-day power prices were mixed. IntercontinentalExchange reported that at the New England Power Pool's Massachusetts Hub, next-day real-time power gained $1.99 to $41.99/MWh, but at the PJM West Hub, real-time Tuesday peak power fell $1.46 to $44.17/MWh. The New York Independent System Operator's Zone A market point (western New York) for Tuesday peak power eased $1.35 to $36.55/MWh.
"In the Marcellus, everybody is tying something in and everybody is doing maintenance," said the marketer. "Every pipe is doing something somewhere."
Tennessee Gas Pipeline posted a critical notice Monday that at Station 323 in eastern Pennsylvania, no additional capacity was available out of total design capacity of 806,359 Dt/d. At Marcellus Station 315, 248,593 Dt/d was available out of design capacity of 1.3 million Dt/d.
Quotes at Algonquin Citygate jumped 26 cents to $3.58, and next-day deliveries to Iroquois Waddington added 8 cents to $3.87. On Tennessee Zone 6 200 L, gas changed hands at $3.59, about 16 cents higher. Dominion's Tuesday deliveries rose 8 cents to $3.05, and packages at Tetco M-3 gained 16 cents to $3.37. Gas headed for New York on Transco Zone 6 added about 11 cents to $3.50.
Deliveries to Marcellus points jumped. Transco-Leidy Line advanced 46 cents to $2.04 and Tennessee Zone 4 Marcellus jumped 59 cents to $2.11.
Despite last week's soft performance, Devo Capital's Mike DeVooght sees latent fundamental market strength. In a weekend note to clients, he said "favorable manufacturing, construction and industrial numbers this past month should help increase industrial demand. This could prove to be a bullish factor for natural gas in the coming months."
DeVooght sees the market at current technical support levels but believes natural gas is still weak. "We would normally be looking at selling some put premium here but will hold off for the time being until we see some signs of strength in the gas market. Continue to hold current positions," he said.
Current positions for trading accounts include holding on to a short September position rolled from a short June at $4.35. DeVooght said to risk 25 cents on the trade. End-users should continue to stand aside, and producers and those with downside price exposure should hold on to the remainder of a short September-October strip at $3.75-3.95, as well as a short November-March strip initiated at $4.50-4.60.