Physical natural gas traded Monday for Tuesday delivery was widely mixed with prices swinging as much as 25 cents above or below unchanged. New England points suffered the indignity of having temperatures swing from summer-like conditions to well below normal within the space of 24 hours, and Chicago also saw a 15 degree drop from "summer" to normal within a day's time period as well.
Marcellus points registered double-digit gains, but next-door Mid-Atlantic locations saw similarly sized moves to the downside. At the close of futures trading June had fallen 9.7 cents to $4.434, and July was off 10.1 cents to $4.439. June crude oil gained 60 cents to $100.59.
Big temperature swings were forecast for New England. AccuWeather.com predicted that Boston's Monday high of 83 degrees would dive to 57 on Tuesday and recover to 61 on Wednesday. The seasonal high in Boston is 65 for mid-May. Providence RI was expected to see its Monday high of 82 plunge to 60 Tuesday and climb back to 64 on Wednesday. The normal high in Providence is 68. Hartford, CT's Monday high of 84 was predicted to tumble to 67 Tuesday before falling further to 63 on Wednesday. The seasonal high in Hartford is 70.
The culprit of the wide temperature swings was a backdoor cold front which was expected to march through the area Monday evening, "with temperatures noticeably cooler behind the front tonight and Tuesday...along with mainly dry weather," said the National Weather Service in southeast Massachusetts. "Maritime high pressure provides cool and mainly dry weather into Wednesday, [and] a period of unsettled weather is likely Thursday into the weekend. The best chance of heavy rain and possible thunderstorms is expected Friday night into Saturday."
Next-day prices reacted accordingly. Deliveries to the Algonquin Citygates jumped 27 cents to $4.10 and gas into Iroquois Waddington gained 21 cents to $4.65. Deliveries to Tennessee Zone 6 200 L added 17 cents to $4.09.
Those price swings might have been greater had it not been for imported gas from the north. "Encana’s Deep Panuke project produces and processes natural gas from the Deep Panuke field, approximately 155 miles southeast of Halifax, Nova Scotia on the Scotian Shelf," according to industry consultant Genscape. It added that Deep Panuke production came online August last year and has produced over 250 MMcf/d in the first quarter of this year. Deep Panuke provides a steady supply to New England market via flow on Maritimes and Northeast pipeline. Maritimes imports into New England jumped to as high as 800 MMcf/d in the winter when Algonquin Citygate price spiked, [and] the jump in flow is mostly from LNG terminal sendouts from St. Johns Canaport LNG terminal."
"In the past month, the flows are mostly from Deep Panuke production. Maritime’s receipts at the US/Canada border suggested a steady deliveries from Deep Panuke production and some small-scale on shore production and storage withdrawal of 240 MMcf/d in the first quarter of this year. February, Maritimes brought in 214 MMcf/d of gas at Baileyville [and] May deliveries has decreased slightly to 176 MMcf/d, possibly due to some gas going into storage in Canada," Genscape said.
Marcellus points were strong, but locations in the Mid-Atlantic slid. Gas at Tennessee Zone 4 Marcellus gained 23 cents to $2.31 and packages at Transco-Leidy rose 30 cents to $2.33.
Gas bound for New York City on Transco Zone 6 fell 21 cents to $3.60 and deliveries to Tetco M-3 shed 20 cents to $3.52.
Temperatures in the Mid-Atlantic were expected to drop to more seasonal levels. AccuWeather.com forecast that the high Monday of 85 in New York City would drop to 69 Tuesday followed by further fall to 60 on Wednesday. The normal high in New York City this time of year is 70. In Philadelphia Monday's 85 degree high was seen falling to 77 Tuesday and 68 on Wednesday. The seasonal high in Philadelphia is 72.
Next-day gas at Midwest and Great Lakes points was not quite as volatile as eastern points, but weather changes were equally abrupt. Tom Skilling of the Chicago Weather Center forecast that Monday's high in the Windy City of 85 would drop to 70 Tuesday before falling further to 61 on Wednesday. For Tuesday Skilling said "showers and possible t-storms linger until midday, then becoming partly cloudy. Cooler, drier air arrives as winds turn NW at 10 to 20 mph."
On Alliance next-day gas added 3 cents to $4.54 and at the Chicago Citygates gas for Tuesday was quoted at $4.55, up a penny. At the Joliet Hub Tuesday packages came in at $4.54, up 2 cents and on Michcon next-day gas changed hands at $4.62, down 8 cents. Consumers gas was seen at $4.60, down 9 cents.
Futures declined as traders continue to digest a significant shift in the supply dynamic. That shift will likely become more apparent when "next week ...triple digit builds should become the norm rather than the exception," a Midwest trader said.
In addition low storage inventories do not seem to be an issue. "The sentiment seems to be that storage levels will replenish themselves by the start of heating season," said Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm. "Fundamentally, it has been our feeling that the natural gas market is becoming much healthier than it has been in quite some time. But the mending process will occur over a long period of time. The fact that natural gas rig activity has been slipping is supportive, but the lack of any significant demand upticks is negative," he said in a weekend note to clients.
"On a trading basis, we feel selling the summer above $4.50 for producers is an attractive selling level. It could be that in the future the mid to high 3s will be the new floor on the breaks. We will continue to hold our current short positions for hedges.
DeVooght counsels trading accounts to hold on to a short June futures position (rolled from an initial April sale at $5.00-5.10) and said end-users should stand aside. Producers and those with exposure to lower prices should continue to hold a short June-October at $4.20-4.30 (initial position) and also hold short the summer strip at $4.50 (increased position). The summer strip settled Friday at $4.527.
Near-term weather is active, with Denver Monday morning sitting on 30 degrees with a high of 42 expected, which is 24 degrees below normal. However, in the next 15 days WeatherBELL Analytics expects accumulations of both heating and cooling degree days to be below normal. "The major shot of cold is coming on time. The five-day means of the ECMWF [European model] are well behaved from last week's ideas," said meteorologist Joe Bastardi in a Monday morning report to clients. "The bulk of the major late-winter storm will be done in Colorado after today. The ECMWF still has 17 degrees F at Denver tomorrow night, which given the coldest ever in May was 21 degrees on May 1, the model is probably a bit too cold. It is an outrageous event nonetheless!
"The point here is the cold and snow was not hype. We do get close to 90 degrees in [Washington, DC], but it appears worries from some sources last week for 95 degrees were too much."
Tim Evans of Citi Futures Perspective sees institutional selling pressure. "[To] the extent that money managers are holding larger net long positions than they would like, we see risk of speculative long liquidation on top of the weakening in the physical market. We think this could send nearby natural gas futures back down to the $4.25 area last seen in early April, but we would rule out a test of the $4.00 mark last seen in early January."