Cash prices shot higher Tuesday with an average overall change of nearly 30 cents. Particularly strong were Northeast points, which fell under a triple whammy of pipeline maintenance, forecasts of hot temperatures and unexpected nuclear outages. Eastern locations also joined in the rise with hot temperatures expected Wednesday in major metropolitan areas.
At the close of futures trading, the July contract had failed to take any kind of cue from the soaring cash market and fell 9.0 cents to $2.545. August dropped 9.4 cents to $2.574, and July crude oil added 76 cents to $84.03.
"The high Northeast prices are still reflecting the pipeline maintenance and heat expected in New York and Boston," said an East Coast trader. "I wouldn't have guesstimated $3 higher, but for example on Tennessee there is just a limited amount of gas that wants to come on to the system unless prices support it such as a power load or electrical generation demand increase.
"All the gas is going to get to the Tennessee market based on the capacity that is available. It gets limited because of the maintenance. There are people who have capacity, but a lot of that is held by LDCs, and they are not out marketing that unless they have released it and made it available."
He added that the market becomes all these other people that have a bunch of other capacity that try to move the gas in.
"The power load generation guys then typically ask, 'how are we going to get our gas,' and it's got to come from other sources such as Canada. So you have gas coming in from the Maritimes, which costs an arm and a leg."
Quotes on Tennessee Zone 6 200 L jumped about $3.65, and next-day prices at the Algonquin Citygate soared close to $3.70. Both points were on the cusp of $7. Deliveries to Iroquois Waddington gain more than 80 cents
Tetco M-3 rose more than 30 cents, and Transco Zone 6 New York jumped nearly 80 cents.
The primary non-participant in the day's gains was Tennessee Zone 4 Marcellus, which lost more than a dime.
Forecasters are calling for heat in the East and Northeast to continue through Thursday. "The majority of the region will be dry and hot midweek, [and] temperatures will be 10 to 20 degrees above average in all areas," said Mark Ressler, lead meteorologist at The Weather Channel. "Lows will only drop into the 60s and 70s, [and] highs will be in the 80s and 90s with some upper-90s from Connecticut to northern Virginia. The heat continues Thursday with some near-100-degree temperatures from Connecticut to northern Virginia."
As if the heat and pipeline maintenance didn't add enough market pressure, unanticipated nuclear outages further tightened the market. Monday afternoon the 506 MW Vermont Yankee power plant was reduced to 36% capacity because of an electrical failure in a generator that regulates the flow of reactor cooling water. No indication was given when the unit would return to full power, and plant technicians are working to determine the cause of the failure. The facility is located about five miles south of Brattleboro, VT.
Gulf points couldn't quite muster the gains of the East. ANR SE was quoted more than 15 cents higher, and Columbia Gulf Onshore increased almost as much. Henry and Trunkline E LA both were more than a dime higher, and Tennessee 500 L added almost 15 cents.
Western points gained. Malin added more than a dime, and Opal tacked on nearly 15 cents.
California points were a relative sea of tranquility. PG&E Citygate and SoCal Citygate were up by almost a dime, as was SoCal Border.
Futures traders versed in Market Profile lean toward higher prices in spite of the day's losses. "There are no value areas below us, and all the value areas to test are above us," said Tom Saal, vice president at INTL Hencorp Futures in Miami.
"My bias is for prices to eventually go higher, but if we ever get up to around $2.80, that could be explosive. That's a huge resistance area. We are still in a range, but prices are moving more rapidly. Before it would take a month to do what we now do in a week in terms of price movement. The volatility has increased."
How quickly the market can change. In spite of Monday's 17-cent surge, analysts aren't looking for prices to move much higher. "The market was in striking distance of new lows last week at this time ahead of a mildly supportive storage figure that prompted a frenzy of buying that swung momentum decisively back to the up side. While this momentum will turn again back to the downside, attempting to pick a top to this rally will be extremely difficult, especially with the temperature factor now looking bullish through month's end," contends Jim Ritterbusch of Ritterbusch and Associates.
"Of course, warm temps will boost EG [electricity generation] demand further in the process of maintaining the dynamic of a contraction in the supply surplus that has been supporting natural gas values since around mid April. While we were not surprised by the price lift to the $2.62 area, we are viewing values north of this level as a bit excessive in view of recent fundamental shifts. We believe that last week's bullish miss of 4-5 Bcf in the storage figure and this week's updates to the short-term temperature views are insufficient to sustain price gains much beyond this morning's highs," he said in a morning note to clients.
Next week's weather forecasts show above-normal temperatures, but they are confined to the mid-section of the country. Commodity Weather Group in its six-to 10-day outlook shows a ridge of above-normal temperatures trending northwest southeast and centered over Kansas and Nebraska. The Pacific Northwest and New England are expected to be below normal.
"We are still tracking the hottest event of the summer so far for the East Coast later this week with mid- to upper-90s [temperatures Wednesday] and then upper 90s up and down the East Coast on Thursday. Some spots could crest the century mark as humidity is moderate to high," said Matt Rogers, president of the firm.
"The short-lived heat event collapses by Friday into the weekend. Next week's outlook is shifting hotter for parts of the interior Deep South, with Dallas aiming for some 100-degree readings and upper 90s from Houston to Memphis. Meanwhile, the West Coast is trending cooler with some much-below-normal temperatures possible. The 11-15 day [forecast] continues to be very complicated, but the main hot areas seem to be the interior West and the South."
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