Cash market prices overall fell an average of 28 cents Thursday, but much of the decline resulted from short-term weather-driven changes affecting Northeast markets. Declines averaged closer to 14 cents if the multi-dollar free-fall experienced by Northeast markets is not considered, but losses were widespread nonetheless.
The Energy Information Administration (EIA) reported an increase in inventories of 62 Bcf, about what the market was expecting, and at the close of futures trading the July contract had risen 6.5 cents to$2.582 and August settled 6.3 cents higher at $2.618. August crude oil was in a free-fall, dropping $3.25 to $78.20/bbl.
Not all cash players have had to deal with the market's recent ups and downs. "The good news is that we haven't bought since the beginning of the month so our gas prices are looking pretty good," said a Great Lakes area buyer. "We averaged about $2.52 for our purchases, but most of that was due to the baseload we purchased. We had two other purchases in the $2.30s."
The buyer also noted that Michcon was altering ACQ (annual contract quantity) for buyers. "Last year Michcon altered ACQ, and here it is one-year later and they are doing it again. The ACQ number is going to drop because they look at the last 24 months and we have had a mild winter. By doing that Michcon is limiting the amount of storage available to customers."
Gas for next-day delivery on Michcon fell nearly 15 cents, and deliveries on Consumers and at Chicago Citygate were off by about the same amount. Farther east at Lebanon gas was seen nearly 21 cents lower.
Northeast points plunged as weather forecasts called for relief from the brutal heat pounding Boston, New York, Washington, DC, and much of the East. "As heat reaches its peak in the East through Thursday, the clock is ticking on the arrival of cooler, less humid air for the region," said AccuWeather.com meteorologist Alex Sosnowski.
The pattern of cool air rolling out of Canada during recent weeks will soon resume. Just when you thought summer was here to stay, a cool front will push into the Appalachians and New England during Friday, then to the mid-Atlantic coast by Saturday. During the transition, thunderstorms are likely to erupt.
While far from a blast of cool air, the first push from Canada will take the edge off the heat and replace dangerous conditions with levels that are much less troublesome. High temperatures in the 90s to near 100 will be replaced by high temperatures in the 80s."
Quotes on Algonquin dropped nearly $5, and gas delivered on Tennessee Zone 6 200 L skidded nearly $4.90. Deliveries to Iroquois Waddington were nearly a dollar lower.
Declines at other eastern points were less severe. Tetco M-3 dropped nearly 25 cents, and quotes on Dominion were down a few pennies less. Gas on Transco Zone 6 New York fell about $1.
"The last couple of days were scorching hot, and we've only just begun summer," said one East Coast marketer. "However, it looks like temps are going to dip a bit, which allowed prices to come off...in some cases heavily."
Quotes on the Texas Gulf Coast were more resilient still. Deliveries on Transco Zone 2 were down nearly 20 cents, but gas at Katy and the Houston Ship Channel fell just over a dime.
Futures traders digested an EIA storage report that was about in line with their expectations. For the week ended June 15, the EIA reported a build of 62 Bcf, just a hair lower than what the market expected.
The day's advance has traders thinking further gains may be on the horizon. "I think the market is poised to make another leg up to $2.73 to $2.81," said a New York floor trader.
He added that crude oil was poised to tank further, and although there is little correlation between crude oil and natural gas prices, "if that fails, it could pull natural gas down just a little in sympathy. If that happens and prices drop below the $2.47 to $2.48 area, then we'll be in a sideways doldrums for a little bit."
The debate continues to percolate about the degree of coal-to-gas-to-coal switching, but the release of inventory figures by EIA seemed to indicate coal-to-gas switching had not abated even as natural gas climbed back from earlier sub-$2 levels. A higher-than-expected increase in inventories could have been an indication of a switch back to coal.
Estimates for the week of June 15 were mostly higher than the 62 Bcf build reported. Citi Futures Perspective analyst Tim Evans predicted a fill of 61 Bcf, and a Reuters poll of 28 traders and analysts revealed an average 64 Bcf with a range of 59-68 Bcf. Industry consultant Bentek Energy forecast an increase of 67 Bcf. Last year 90 Bcf was injected, and the five-year average stands at 87 Bcf.
At present, inventories stand at a plump 3,006 Bcf, and figures show that to reach "full" storage of 4,103 only 55 Bcf need to be injected weekly by the traditional Nov.1 start of the heating season.
Market technicians see both bulls and bears having to make their case. "No change," said Brian LaRose, market analyst with United-ICAP. "Bulls have no case for a run to $3.025 (a=c) or $3.555 (1.618 a=c) unless they can get above $2.672-2.698. Bears have no case for a test of $2.085-2.080 (a=c) unless they can get below $2.306-3.277. Until resistance can be exceeded or support can be broken natgas is stuck in neutral territory. At this time we suggest a patience until the trend is clear," he said in comments to clients.
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