The physical market plunged overall on average by about 14 cents Friday as a combination of a weak screen along with operational problems in places on the East and West Coasts worked to pummel prices lower.
Particularly hard hit were pipes into California as OFOs were issued reflecting an oversupply of gas. At the close of futures trading, June had dropped 7.9 cents to $2.568 and July had shed 8.2 cents to $2.627. July crude oil added 20 cents to $90.86/bbl.
SoCal Gas issued operational flow orders for Friday and Saturday. It said that it would limit "all receipt point nominations up to the total system capacity. Customers must ensure that all deliveries into the SoCalGas system are within 110% of expected usage."
"SoCal Citygate is trading about $2.57, but it's a long weekend and they called OFOs," said a southern California trader. "That created the push below $2.60."
Delivery points at northern California points softened as well. Malin was quoted nearly 20 cents lower, and PG&E Citygate was off almost a dime. SoCal Citygate and SoCal Border each plunged almost a quarter, while El Paso South Mainline dropped nearly 20 cents.
Gulf points joined in the declines. Henry and Tennessee 500 L were both off about a dime and ANR SE skidded more than a nickel.
Points in the Northeast suffered double-digit losses. Algonquin Citygate, Iroquois Waddington and Tennessee Zone 6 200 L were all seen off nearly 15 cents.
The biggest loser on the day was Tennessee Zone 4 Marcellus, which saw gas back up as a leak in Mount Vernon, NY, was under repair. Prices fell more than a dollar as Con Edison's Orange and Rockland unit on the west side of the Hudson River from Westchester was asking marketers to move natural gas deliveries on the Tennessee pipeline, a major carrier in the area, to the Columbia or Algonquin pipelines.
Traders saw gas prices upstream getting hit. "Basically, it is backing up a lot of gas at White Plains, and I think you will see [Tennessee] Marcellus at a pretty low price. New York has options. They can bring gas in on Transco, Tetco, Tennessee and Iroquois," said an eastern marketer.
Futures traders were somewhat circumspect about the day's loss. Volume was light, and many traders elected to get an early start on the long weekend. "We were looking for the market to come off," said a New York floor trader. "People were looking for a test of $2.50, but it only got to $2.523 and didn't break. It was options expiration, and $2.50 was a good number for options traders to defend."
Market analysts see a slowing in the rate of surplus contraction and the market hitting resistance at about $2.75, a level considered the point at which coal may become an attractive alternative. "Although some additional narrowing in the supply surplus is expected [in the next report on natural gas storage], we feel that the recent shift in the short-term temperature views will begin to slow the surplus contraction appreciably," said Jim Ritterbusch of Ritterbusch and Associates.
"At some point, the market will begin shifting focus back to an exceptionally high absolute storage level and away from the dynamic of a narrowing in the overhang. Unless supported by evidence of a hot summer, the market could then begin to ratchet lower in the process of offsetting a major portion of this month's gains. While power demand will remain under the microscope as far as demand expectations are concerned, we will continue to view production slippage as a longer-term supportive consideration."
Despite Thursday's 9-cent drubbing, along with Friday's loss, market technicians still see support intact. "No change," said Brian LaRose, an analyst with United-ICAP. He said there is "only one way to suggest $2.759 marked the end of this leg up from $1.902: take out key support. The level to break: $2.518.
"Sink below this $2.518 and a correction of the $1.902-2.759 advance would be anticipated at minimum from here. Fail to get back below $2.518 and higher highs would be anticipated before any chance of peaking action," he said following Thursday's close.
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