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Load-Driven Northeast Scores Double-Digit Gains; Futures Advance

A majority of points registered double-digit gains Monday with Northeast locations leading the advance. Expected late spring New England heating loads prompted higher quotes, but a strong screen placed a bullish tone to nearly all delivery points. Futures took much of their cue from longer term weather forecasts showing an axis of warm temperatures engulfing the Midwest and East.

At the close of futures trading July had risen 8.9 cents to $2.415 and August had climbed 8.0 cents to $2.467. July crude oil staged a last minute advance rising 75 cents to $83.98/bbl.

Northeast marketers reported cool temperatures adding to a lingering heating load. "Boston is going to see highs only in the low 60s, and there is actually heating load in June," a trader said.

Even with the higher loads and higher prices, trading opportunities proved few and far between. "Everyone is doing the same thing we are. There aren't any really ridiculous spreads right now, and you take what you can get. Be happy with a 2-cent margin, and in the winter be mad if you don't get 20 cents."

Quotes for next-day gas into the Algonquin Citygate added nearly a quarter, and quotes on Iroquois Waddington were up by nearly 15 cents. Deliveries into Tennessee Zone 6 200 L added almost 20 cents.

Cooler temperatures were not limited to New England. Forecaster AccuWeather.com predicted New York City's high of 65 on Monday would inch up to 66 on Tuesday and 68 on Wednesday. The normal high in New York City this time of year is 77.

The National Weather Service in New York City said "an upper level disturbance will remain over the area through the end of the work week. This disturbance will finally give way to high pressure over the weekend and into early next week."

Next-day gas on Tetco M-3 rose 18 cents and gas deliveries to Transco Zone 6 added about 16 cents.

Gulf quotes couldn't quite match the super-sized gains of New York and the Northeast. Tennessee 500 L and Tetco E LA were both higher by just more than a dime and gas on ANR SE and Columbia Gulf Onshore added about a dime, give or take a penny. Henry was up a little more than a nickel.

Prices gains in the Rocky Mountains were more along the lines observed in the Gulf Coast. Gas at the Opal Plant tailgate were up a little more than a dime and both CIG and Northwest Pipeline Wyoming added nearly 15 cents. Cheyenne Hub added a few pennies more.

Short-term futures traders are anticipating a continuation of Monday's gains. "There is really nothing above $2.432. No stops or anything until you get to $2.50 to $2.52," said a New York floor trader. "We are thinking that overnight or [Tuesday] prices are going to be heading in that direction."

Stephen Smith of Stephen Smith Energy Associates is looking for a slate of natural gas prices considerably higher. "[G]as-fired power generation has been taking substantial generation share form coal. We continue to expect gas production capacity to decline moderately in the second half of 2012," he said in a note to clients.

Smith forecasts the average July August September Henry Hub expirations to be $3.25 "as compared with June 1 settlements of $2.38/MMBtu (much of this difference probably derives from 'summer CDD [cooling degree day] skepticism' after a 'cold' start for the first half of June," he said. He also forecasts October-November Henry Hub expirations to be $2.98/MMBtu compared with June 1 average settlements of $2.65/MMBtu.

The groundwork was in place for Monday's advance before the open when weather forecasts over the weekend turned warmer. MDA EarthSat in its six- to 10-day outlook forecast a northeast/southwest trending ridge of above-normal temperatures extending from Texas and New Mexico to Maine, Minnesota and beyond. "The forecast for the Central to Eastern U.S. has warmed while the Western U.S. has cooled in [Monday's] outlook. Models are in good agreement on a bit more pattern amplification early on, both with the ridge in the Midwest and the trough in the West.

"This setup should provide plenty of cool air to the Northwest, while also opening the door to the next opportunity for 90 [degree-plus] heat in parts of the Midwest. The Northeast should start the period near normal but will also warm to above thereafter. The quickly fading blocking pattern helps to make these shifts possible."

Analysts see the tumbling price of crude oil as having an impact on the economics of drilling for natural gas. "There has been a lot of talk of end-users locking up long-term supplies, which could very well put a floor under the market. But there is little reason for these end-users to 'pay up' at this time," said Devo Capital Management President Mike DeVooght.

"One factor that could have a significant impact on future drilling budgets is the plummeting liquid prices (down by 20-40%). These liquids that were flirting with record highs just weeks ago were cushioning the extremely low dry gas prices. If the slide continues, drilling in the liquid-rich shale plays might not look real attractive. Ultimately, if drilling really falls off, we could see a much tighter market down the road."

DeVooght currently advises trading accounts and end-users to stand aside, but producers and those at risk for lower prices should hold on to an October $2.50 put position established earlier to cover the summer strip at a debit of 25-27 cents. If prices were to continue falling, "we will be looking for long spec trades if we drop back to test the $2 level."

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