Natural gas for physical delivery Thursday eased 2 cents overall on average in Wednesday's trading, with New England points leading the charge lower with double-digit losses, while Marcellus points gained ground. For the most part, losers outnumbered winners, but most locations managed to trade within a few cents of unchanged.
At the close of trading, December natural gas futures had fallen 0.9 cent to $3.620 and January was off by 0.3 cent to $3.711. December crude oil dropped $1.43 to $96.77/bbl.
In the Great Lakes, next-day prices were mostly steady as buyers enjoyed some of the lowest prices seen since early October. "The numbers [prices] are nice, but we will see going forward," said a Michigan buyer. "It looks like we could potentially have some warmer weather.
"The Nymex settlement of $3.496 was a nice one, and we did buy a little gas for Thursday to round out customer balances for October. On Consumers we bought 3,000 MMBtu and paid $3.755 and $3.760 for two packages, and those were under the baseload price at the beginning of October. Every little bit helps," he said.
Warmer weather for the region is forecast for Thursday before temperatures are expected to return closer to normal. AccuWeather.com predicted Wednesday's high of 56 in Milwaukee would reach 62 on Thursday before dropping to 53 on Friday. The normal high in Milwaukee is 53. Chicago's high of 60 Wednesday was expected to hit 65 on Thursday before falling to 55 Friday. The seasonal high is 56. Detroit's high temperature of 61 Wednesday was also forecast to make it to 65 Thursday and then slide back to 58 Friday. Like Chicago, the normal temperature this time of year is 56.
The National Weather Service (NWS) in Chicago saw a potential for heavy load-killing rains through Thursday. A “prolonged period of unsettled weather” was to begin Wednesday afternoon and “continue through Thursday evening as low pressure lifts north across Wisconsin overnight with a second low developing” over Oklahoma Wednesday night and moving northeast across the south end of Lake Michigan by Thursday night.
Gas into Alliance for Thursday was quoted at $3.74, unchanged, while deliveries to the Chicago Citygates changed hands down 2 cents at $3.73. Gas into Michcon was flat at $3.74, and packages on Consumers were up one cent at $3.75. Deliveries to Dawn held steady at $3.86.
Gas prices in the East and Northeast fared the worst in Wednesday's trading as soft power prices gave power generators little incentive to purchase gas for electrical generation. IntercontinentalExchange reported that next-day peak power into the New York Independent System Operator's Zone G (eastern New York) delivery point fell 34 cents to $40.06/MWh and Wednesday power at the New England Power Pool's Massachusetts Hub fell $1.32 to $39.07/MWh.
Expected mild weather also pulled down prices. The NWS in southeastern Massachusetts said high pressure was moving south south of New England Wednesday with a warming trend through the end of the week. Scattered showers were possible Thursday “as the milder air moves in...then unseasonably mild...windy and wet weather Thursday night into Friday ahead of a cold front. A few showers linger on Saturday...then colder and blustery conditions arrive for Sunday into early next week."
Gas at the Algonquin Citygates skidded 28 cents to $4.26 and at Iroquois, Waddington next-day deliveries dropped 8 cents to $3.90. On Tennessee, Zone 6 200 L Thursday gas came in at $4.23, down 26 cents.
Farther south prices also eased. Deliveries on Dominion were off 4 cents to $3.32, and on Tetco M-3 gas for Thursday was seen at $3.54, down 3 cents. Gas destined for New York City on Transco Zone 6 shed 8 cents to $3.62.
Marcellus points gained. Leidy Transco gas came in at $2.62, up 34 cents and gas on Tennessee Zone 4 Marcellus added 6 cents to $2.15.
Thursday's Energy Information Administration (EIA) storage report should see a sub-par injection and perhaps give the bulls fodder for improved prices. Last year 66 Bcf was injected and the five-year average stands at 57 Bcf, but build estimates for the week ended Oct. 25 are generally in the mid-30 Bcf range.
United-ICAP is looking for an increase of 35 Bcf and a Reuters poll of 24 traders and analysts resulted in an average 36 Bcf with a range of 28 Bcf to 43 Bcf. Industry consultant Bentek Energy utilizing its flow model projects a build of 32 Bcf.
It looks to be a too early to tell if Tim Evans of Citi Futures Perspective is correct, that Tuesday's expiration-day trading, where the now spot December contract gave up 3 cents compared to November's 7-cent drubbing might indicate that the market "could possibly turn higher in the near term on the theory that the recent weakness was only a November expiration phenomenon."
Industry estimates of Thursday's inventory report are in line with Evans' own 34 Bcf prediction. "As we have been noting, a build of this magnitude would look supportive compared with either the date-adjusted 65 Bcf refill a year ago or the 57 Bcf five-year average gain. We think the storage report could give the market a short-term lift, although our forward outlook points to above average injections in the weeks ahead."
In spite of stout builds down the road, Evans isn't convinced still-lower prices are in the cards. His figures show the year-on-five-year surplus up to 82 Bcf by Nov. 15. "In general, a rising surplus represents downward fundamental pressure on prices. However, with the modest net increase forecast over the next few weeks there may not be enough downward pressure to dictate a further test of the downside. Rising seasonal heating demand and the prospect of the upcoming swing to strong withdrawals may count for more."
Market technicians versed in Elliott Wave and retracement analysis see the December contract needing to gain some yardage if any kind of advance can be assembled. "Will the rollover to December represent a the start of a new up-trend? Or will an ABC decline continue to unfold from the $3.869 high?" asked United ICap market technician Brian LaRose. "Only one way to even suggest a bottom is in place at $3.4800 [is to] clear the contentious $3.705-3.745 zone. Until and unless this can be accomplished, a further decline to $3.407-3.393 cannot and should not be dismissed."
In its Wednesday morning Energy Markets Weather Report, Devo Capital Management said it saw no major changes to the six-10 day outlook. "The forecast in this time frame sees an upper air trough to dig into the western U.S. and produce higher than average demands for heat there, with a fairly strong southerly flow to return to the eastern and central U.S., causing demands for heat there to be below average." Farther out in the 11-16 day period, "the outlook for this period sees a fairly west to east flow, with perhaps even a bit of ridging in the central U.S. to produce milder than average temps across most areas of the U.S. to the east of the Rockies, with a pocket of slightly cooler than average temps in the Northwest."