Physical natural gas prices continued Monday's decline in Tuesday's trading as forecasts of warming trends provided little to no incentive to make purchases on the next-day market. A few points in Appalachia and the Marcellus, along with some isolated Rockies locations were able to escape the price cleaver, but otherwise the selling was broad and pervasive.
New England led the charge lower, but the Great Lakes region was also lower along with the Gulf. At the close of futures trading May had given up 9.5 cents to $4.276 and June was also down 9.5 cents to $4.309. May crude oil tumbled $1.84 to $99.74/bbl.
Next-day prices at eastern points showed the most weakness as active weather along with a warming trend kept gas buyers on the sidelines. The National Weather Service in suburban Philadelphia said, "high pressure will move east of the area [Tuesday] as a low-pressure system lifts into southeastern Canada. Its associated cold front will cross our region Wednesday, but it will eventually stall just to our south with a few waves of low pressure possibly moving along it. A more organized low-pressure system is forecast to develop over the Central Plains states late Thursday and then track northeastward, with its warm front crossing our area Friday, followed by the cold front on Saturday. High pressure briefly returns on Sunday, followed by another low-pressure system possibly affecting the region late Monday into Tuesday."
Forecaster Wunderground.com predicted that the high Tuesday in Boston of 47 would rise to 49 Wednesday and reach 52 by Thursday. The seasonal high in Boston is 50. Albany, NY's Tuesday high of 52 was seen making it to 61 on Wednesday but slipping to 55 Thursday. The normal early April high in Albany is 52. Philadelphia's Tuesday high of 59 was anticipated to reach 66 on Wednesday and ease to 58 on Thursday. The normal high in Philadelphia at this time of year is 55.
Gas for delivery Wednesday to the Algonquin Citygates fell 76 cents to $5.34, and deliveries to Iroquois Waddington shed 59 cents to $5.07. Gas on Tennessee Zone 6 200 L was down 73 cents to $5.43.
Great Lakes marketers said they were buying next-day gas and rather than rely much on April index, they planned on buying spot gas for much of the month. "We bought on Consumers from $4.90 to $4.99 for Wednesday, and that certainly looks better than March," said a Michigan buyer. "We ended up not doing much buying at all at April index, and that might work out better."
Next-day gas on Michcon was seen at $4.80, down 16 cents, and deliveries on Consumers fell 19 cents to $4.84. Gas at Dawn fell 11 cents to $5.05.
Gulf points were also weak. Gas on Columbia Gulf Mainline fell 9 cents to $4.24, and deliveries on ANR SE shed 11 cents to $4.24. At the Henry Hub Wednesday packages were quoted at $4.35, down 12 cents, and deliveries to Tennessee 500 L fell 4 cents to $4.29.
Short-term price weakness notwithstanding, if analysts are correct that storage restocking will be more difficult than presently anticipated, the groundwork could be in place for eventual price appreciation.
"A dramatic shift in pipeline-delivered supplies has taken place over the last several years as natural gas production from shale has displaced conventional sources," said Teri Viswanath, commodity strategist at BNP Paribas in New York. "Low-cost supplies from the Marcellus have displaced supplies from other competing regions, including the Southeast, the Midcontinent and Canada. This changed geography of supply has taken place without the necessary transformation of the major transportation corridors.
"In order to refill storage, traditional sources of supply are still very much required for rebalancing as a significant portion of storage facilities in the East and West consuming regions of the U.S. are simply not well connected to the new areas of production growth. Yet with these traditional sources of supply in decline, in the event of an absence of demand accommodation, an important tradeoff will necessary have to take place at the detriment of storage injections. Accordingly, we think the combination of limited infrastructure additions and merchant 'decontracting' will ultimately curb the build in inventories this season to just 3.35 Tcf."
Those attempting to trade the market off near-term weather developments may be in for some heavy lifting. According to weather forecaster Commodity Weather Group, an overall cooler trend in the six- to 10 and 11- to 15-day periods is likely to be punctuated by less predictable short-term swings. "A very active weather pattern prevails over the Lower 48 and southern Canada over the next two weeks, keeping forecast challenges high as the guidance grapples with day-to-day detail challenges," said Matt Rogers, president of the firm.
"The big picture view is still a cool-prevailing variability story, so net national demand should continue to run higher than normal, but the most frequent focus of above-normal demand concerns appears to be in the Midwest more than the South and East. The end of the European ensemble continues to show bigger Alaskan ridging returning inside the 11-15 day. As we have seen frequently this heating season, it would mean colder risks for the Midwest than perhaps shown on the modeling currently. The only offsetting risk would be some Pacific undercutting flow, but the Euro ensemble is slowly starting to close that door, too."
In the very near term, however, the weather ball is in the bulls' court as the National Weather Service for the week ended April 5 sees below-normal heating requirements in key energy markets. New England is expected to see 159 heating degree days (HDD), or nine fewer than normal, and the Middle Atlantic is set to endure 140 HDD, or eight fewer than its normal tally. The Midwest from Ohio to Wisconsin is predicted to see 147 HDD, or five fewer than normal.
Analysts are unfazed in their short-term bullish outlook, even with Monday's 11-cent selloff. "The magnitude of [Monday's] selling was a bit of a surprise given this late stage of the heating cycle and the fact that weekend temperature views didn't appear to show much change from Friday," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Monday.
"Nonetheless, we can acknowledge much pushing and pulling between the bulls and the bears as seasonally inclined traders will occasionally be able to exert significant downside pressure in the absence of a bullish short-term demand factor. Non-commercial accounts increased shorts some 6,300 contracts amidst only a 1-cent price drop in nearby futures, according to Friday's COT report. Regardless, we still look for a significant price rebound by mid-week when the market is forced to consider another exceptionally strong supply withdrawal that will keep storage at about half of year-ago and average levels. We still see significantly more upside than downside risk from current levels. In other words, our short-term upside target to the $4.61 area and longer-term objective toward $4.80 both remain undeterred by [Monday's] selloff. We also advise staying with bull spreads within the deferred portion of the spread curve."