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Broad Cash Gains Outpace Modest Futures Move

Physical gas for Thursday delivery jumped on average 8 cents nationally in Wednesday's trading, with only a handful of individual points in the loss column surrounded by widespread gains. A large cold front was dropping temperatures well below normal as it moved out of the Plains and Midwest into the Great Lakes and into Texas.

At the close of futures trading, December had risen 3.2 cents to $3.498 and January was up 1.5 cents to $3.566. December crude oil gained $1.43 to $94.80/bbl.

Temperatures throughout the Midwest and Great Lakes were expected to send temperatures well below seasonal norms. Wunderground.com predicted that Chicago's high of 57 on Wednesday would slide to 46 Thursday and then to 48 on Friday. The normal high in Chicago in early November is 54. Milwaukee's 55 high Wednesday was set to fall 10 degrees on Thursday before moving to 48 Friday; the seasonal high is 51. In Detroit, Wednesday high of 57 was seen falling to 45 Thursday through Friday. The normal high is 50.

The front should bring snow to some points. "A cold front will extend from Texas to Michigan, which will trigger showers and thunderstorms over several regions,” said Wunderground.com meteorologist Kari Kiefer. “Texas, Oklahoma, Missouri, Arkansas, Louisiana, Mississippi and Tennessee will all have a chance for thunderstorms on Thursday, while rain will move across the Ohio Valley, the Appalachians and into parts of the Northeast.

“This cold front will also cause snow showers to occur in several states, including Iowa, Minnesota, Wisconsin and Michigan. The Eastern Seaboard will stay clear of wet weather as a ridge of high pressure builds along the coast,” but “spotty thundershowers” were projected in parts of Florida Wednesday afternoon.

A Great Lakes marketer said the company was able to purchase gas at or under its bid week level. "We bought on Consumers at $3.67 and $3.655 for some customer accounts," said the Michigan marketer. He pointed out that he was under his Consumers bidweek basis levels of 17.5 cents and 22 cents.

"We had heard there might be colder weather at the end of the month, but then we saw another update on weather that make it seem as though it might not be as cold as predicted. The end of the month is a ways away," he said.

Quotes on Alliance for Thursday delivery rose 10 cents to $3.65, and deliveries to the Chicago Citygates posted a gain of 13 cents to $3.66. Gas on Northern Natural Ventura added 9 cents as well to $3.60, and packages at Demarcation were seen at $3.59, 8 cents higher. Deliveries on Panhandle jumped 14 cents to $3.25.

To the east, deliveries on Consumers added 11 cents to $3.64, while gas on Michcon added 9 cents to $3.63. Gas at Dawn rose 8 cents to $3.68.

Other major market centers participated in the day's rise. Gas bound for New York City on Transco Zone 6 rose 4 cents to $3.20, and at the Henry Hub, gas added 9 cents to $3.45. Thursday deliveries on El Paso Permian were up a nickel at $3.37, and gas at the SoCal Border changed hands 8 cents higher at $3.63.

Analysts are predicting Thursday's storage report from the Energy Information Administration would come in just a hair above the long-term average storage builds. A year ago 27 Bcf was injected and the five-year average stands at 36 Bcf. For the week ended Nov. 1, United ICAP’s Drew Wozniak calculated a build of 37 Bcf, and analysts at IAF Advisors in Houston are looking for a 35 Bcf increase. Industry consultant Bentek Energy predicts a 39 Bcf injection.

Medium-term weather forecasts overnight Tuesday turned more supportive. Wednesday’s forecast was cooler in the Midwest/East, noted WSI Corp. in its six- to 10-day outlook. "Forecast confidence is shaky...with considerable model spread next week. The polar high poised to drop down from Canada into the East continues to trend stronger with each passing model run. Temps were trimmed back by several degrees [Wednesday] in the Midwest/East, but there is still room for downside revisions in future updates.’

DEVO Capital President Mike DeVooght said now is the time when natural gas is on track to make a seasonal run higher. "The fact we are so weak when we should be strong does not bode well for the gas market," he said. "Fundamentally, it continues to be difficult to be a natural gas bull. We still feel the higher probability is for the gas market to trade in a low $3-4 range for the foreseeable future. We will use rallies approaching $4 as an opportunity to add to our producers' hedges.”

DeVooght is recommending that both trading accounts and end-users stand aside. Producers and those with exposure to lower prices should continue to hold the balance of a November-March strip initiated earlier from $4.50-4.60.

In looking at the longer-term winter outlook, DEVO Capital meteorologist John Dee is anticipating some below-average temperature anomalies across the north-central United States for the first half of the winter and then similar anomalies in the Northeast for the second half of winter, somewhat different from the National Weather Service forecast.

"Thus, the demands for heat would run above average in the north central U.S. for the first half of the main heating season and then settle into average levels, with the Northeast U.S. and mid-Atlantic to see fluctuating temps lead to close to average temps and heating demands overall for the first half of the winter and then higher than average demands for heat the second half of the winter," he said.

A lot of Dee's forecast is derived from a call on the expected ENSO (El Nino Southern Oscillation) patterns. Dee pointed out that there are "many different forecast models all giving a different scenario, which is typical, especially in [current] ENSO Neutral phases. The official forecast is for the ENSO to remain in a neutral phase through the Northern Hemisphere's winter and early spring."

If ENSO were to develop an El Nino phase, typically warmer temperatures would prevail over the northern United States, but in a La Nina configuration, the Pacific jet stream is more variable and smaller warm anomalies occur across the south-central and southeast United States.

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