Prices continued to rise in the cash market Wednesday, but the gains were considerably smaller than those of a day earlier. And not only were there more points recording flat to lower numbers Wednesday, but the losses were larger in several cases. Trends toward milder temperatures in some areas were seen as responsible for the weakening of a still upwardly mobile market.
However, the growing touches of softness likely will be obliterated Thursday after the November natural gas screen spiked by a little more than 60 cents Wednesday amid an overall price explosion in Nymex's energy markets. The petroleum-based products soared after a Wednesday morning report of inventory declines exceeded or ran contrary to virtually all expectations. Crude oil for December delivery skyrocketed more than $2 to $61.40/bbl.
In addition, prospects for higher cash gas prices Thursday will be enhanced by colder weather returning to some markets Friday. The transition is already under way in the eastern end of the South, where Atlanta's high around 63 degrees Wednesday was expected to be replaced by a 55 peak Thursday. And at the region's other end, Houston will top out in the mid 80s Thursday but be about 10 degrees cooler Friday, according to forecasts.
Wednesday's gains were mostly in single digits in ranging from a couple of pennies to around 20 cents. Several scattered instances of flatness were mixed with losses of up to about 30 cents, with Rockies points exhibiting the greatest degree of softness.
The Rockies likely will reverse price direction Thursday, buoyed not only by the screen spike but also by prospects for a "full-fledged blizzard" developing in southeastern Colorado, according to The Weather Channel (TWC). Not only will the snowstorm boost regional heating load, but highs in the rest of the Rockies are expected to be in the 20s and 30s, TWC said.
On the other hand, previously hot temperatures in Florida are falling to the point that Florida Gas Transmission, warning of high linepack and low market-area demand, cautioned shippers Wednesday of the potential for an Underage Alert Day being declared. As recently as last Saturday the Sunshine state was still hot enough for FGT to have an Overage Alert Day in effect (see Daily GPI, Oct. 24).
Bentek Energy reflected the huge drop in Florida demand in its analysis of U.S. natural gas hub flows (http://intelligencepress.com/features/bentek/). Volumes nominated for FGT market-area delivery Wednesday plummeted by a whopping 770,000 MMBtu/d from the day before, Bentek said.
A utility buyer in Florida said he was surprised about the potential Underage Alert Day notice, saying, "I think our loads were about as expected." It's definitely not a good time to have extra gas on the system, he said. Noting how recently an Overage Alert Day had been in effect, he concluded that it was "a sign of the changing seasons." He considered the UAD posting more of a warning than anything else, saying the state would be getting some cooling load again by Friday.
In November business, the buyer said his company used some of FGT's capacity on Southern Natural Gas to buy "a little Sonat baseload at basis of plus 2 cents. He doesn't expect to make any more bidweek purchases because of Florida's typically low demand in November. But he said he was seeing Florida Gas Zone 3 being offered at plus 19 cents and bid at plus 15 cents Wednesday afternoon, adding that was actually a little weaker than morning basis quotes.
Because of November essentially still being a shoulder month for Florida utilities, the buyer said he was getting the "mild weather blues. Things are quiet for us now and we're getting caught up on paperwork."
"It's amazing what a little cold weather will do" for an October aftermarket that had been expected to be seriously weak, a Midcontinent producer said in reflecting on previous speculation that burgeoning storage volumes might cause a price crash this month. He noted that although it's not terribly cold in northern market areas, the market is being priced in relation to what is "normal" for this time of year. He reported seeing Midwest utilities buying "plenty of gas" this week both at the citygate and in the production area.
There's no doubt that between Wednesday's screen surge and market-area temperatures remaining cold, the market will see higher cash prices Thursday, he said. The Chicago citygate, which averaged in the high $7.50s Wednesday, "easily could be trading above $8," he said.
Commenting on reports of people withdrawing storage instead of buying new gas during the cold spells in the middle of October, the producer said, "That was a dollar ago" in cash prices. The best time to pull from storage is when spot prices are at their highest, he continued, pointing out that all of Nymex's out-month contracts through April are higher than November's.
Due to the Nymex spike, November basis weakened greatly Wednesday, the producer said. He saw Chicago citygate basis down to plus 8.5 cents after being quoted at plus 22-23 cents Tuesday, and added that it was being bid at plus 4 cents and offered at plus 8.5 cents Wednesday afternoon. He also observed Chicago deals being done at the NGI index plus 5-6 cents. Panhandle Eastern traded at index plus 4 cents.
Jim Osten of Global Insight predicts an injection of 35 Bcf to be reported Thursday morning. He also expects the build for the current week to drop to 22 Bcf in the following report.
Reuters news service's survey of 24 industry players found an average expectation of a 31 Bcf injection. The range of estimates was 17-55 Bcf, Reuters said.
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