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Storm Threat Wanes, Not Heat; Prices Mixed

The double-digit advances that pervaded the market Monday were disappearing rapidly Tuesday except in the Northeast, where forecasts are getting hotter. Close-to-flat numbers were common outside the Northeast, and small losses were resurfacing in the price mix for the first time since one last Friday.

Aided by a 12-cent run-up in prompt-month futures a day earlier, prices were able to stay flat or continue rising at most points Tuesday as very hot forecasts remained in place for most of the eastern two-thirds of the U.S. The heat was becoming more prominent in the Northeast and parts of Eastern Canada with high temperatures predicted to reach the 80s through the mid 90s Wednesday.

However, some bearishness was appearing as chances of a storm reaching offshore production diminished and forecasts began to call for milder temperatures in some sections of the Midwest near the end of the week.

A large majority of locations were either flat or rising by up to about 75 cents. The Northeast had by far the largest share of gains exceeding a dime. Losses ranged from 2-3 cents to nearly a dime and tended to cluster mostly in the far West along with a few Gulf Coast/Midwest points.

Cash traders will have neutral guidance from Nymex Wednesday after July futures rose only 0.4 cent (see related story).

The National Hurricane Center (NHC) had cautioned Monday that its 50% odds of the 94L low-pressure system becoming a tropical depression were contingent upon it happening before upper-level winds turned less favorable for development. It appeared Tuesday that the system in the northwestern Caribbean Sea was much less likely to make the depression grade as NHC downgraded its chances of strengthening -- first to 20% and later to 10% that afternoon. The system had also become elongated, stretching horizontally south of Cuba for almost the island's entire length, and it was tracking more to the north than before. That would make it more difficult to traverse Cuba intact, and barring a turn back to the northwest would have the low aimed more at southern Florida than the eastern Gulf of Mexico.

While many thermometer readings in the upper and western sections of the Midwest will be returning to normal conditions before the end of the weekend, the National Weather Service (NWS) expects above-normal temperatures to remain the norm from Sunday through Thursday next week everywhere east and south of a line arcing from eastern New Mexico through the central Midwest into the southern Northeast. NWS looks for the greatest increases from normal to remain in the Southeast from East Texas through the Carolinas, a region that uses gas extensively for power generation.

For now, few parts of the East are escaping a heat wave driving many highs into the 90s. Interior California, though not as sizzling as parts of the desert Southwest, is starting to see higher peak temperatures in the 80s, but that is being counteracted by cooling conditions in the Rockies. Moderation remained the prevalent outlook for the overall West.

The Rockies/Pacific Northwest has regained some storage injection outlets for its gas recently. After Northwest said a maintenance outage at the Jackson Prairie facility had ended a day earlier than expected, allowing injections and withdrawals to resume Monday, CIG lifted constraints Tuesday at its Totem Storage Field (see Transportation Notes).

After ending a previous one Sunday, SoCalGas again issued a high-linepack OFO for Wednesday. The Southern California border dropped about a nickel, while the SoCal citygate loss of nearly a dime was even higher.

Without issuing an OFO, Westcoast said it was experiencing high-linepack issues Tuesday. The pipeline's Station 2 trading point was down nearly a nickel from Monday.

Although Thursday is likely to be the hottest day of the week in the Northeast, a regional marketer said prices may struggle to rise much further even with demand remaining high. Just about all of the gas-fired peaking generation units in the region already seem to be running, he added, so it will be difficult to sell them any more gas than they are already using.

And Tennessee maintenance constraints at a couple of Northeast locations are due to end Wednesday, so that should allow some extra supplies into the region Thursday, the marketer continued. As far as he could tell, the Canaport and Distrigas LNG terminals still have some spare sendout capacity available.

He noted basis spreads widening considerably as Northeast citygates continue to rise while minor softness sets in at several Gulf Coast points. Henry Hub was flat while Transco's Zone 6-New York pool claimed Tuesday's top gain, increasing their spread from half a dollar Monday to about $1.25.

A Southwestern utility buyer said although summers are quite hot locally, recent conditions have reflected the West's generally moderate temperatures while much of the East broils. The utility usually experiences at least one day of reaching 100 degrees during May, but it didn't happen this year, he said. Currently, highs are barely reaching the 90-degree area, he noted, while it seems a lot of Texas has been hitting 100 or more recently.

His company actually is getting into a relatively low-throughput time of year, the buyer said, since it doesn't produce electricity itself and only has a few generation customers.

A marketer said it was still hot Tuesday in the Upper Midwest, but by the weekend temperatures could be getting as low as the 60s. Only a few weeks ago she was still moderately active in the daily market because of customers' lingering heating load, but so far in June the marketer has been buying only a little spot gas at the MichCon citygate for a prepaid client; the warmer weather has made baseload purchases suffice for all other needs, she said.

A 79 Bcf addition to storage for the week ending June 3 is anticipated by Kyle Cooper of IAF Advisors. Citi Futures Perspectives analyst Tim Evans looks for a lower volume of 71 Bcf, to be followed by injections of 65 Bcf for the week ending June 10 and 87 Bcf each for the weeks ending June 17 and June 24.

Stephen Smith of Stephen Smith Energy Associates came in with an even smaller estimate of 69 Bcf for the week ending June 3, but Credit Suisse's Hugh Li and Stefan Revielle look for a more middle-of-the-road build of 74 Bcf.

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