Physical gas for delivery Wednesday moved modestly higher with market moves for the most part confined to advances of less than a nickel. Only a few locations reported declines. The market largely reflected relatively benign conditions of modest temperatures, maintenance, and lack of price-moving cooling load.
Eastern points were higher by a few pennies, and the greatest gains were reported in the Rocky Mountains and Midcontinent. Overall, the market gained 3 cents. At the close of futures trading June had risen 8.2 cents to $4.552 and July was higher by 8.0 cents to $4.553. June crude oil slipped 17 cents to $102.44/bbl.
Conditions are "not too bad,” said a pipeline industry veteran. “It's that time of year and there is a lot of maintenance. Things aren't heating up yet and it's pretty mild everywhere except maybe Amarillo. It's supposed to be 50 degrees for a high in Boston in the next day or so, New York is not all that hot and Houston has been in the mid-80s.”
Forecaster Wunderground.com predicted that the high in Boston Tuesday of 68 degrees would slip to 64 Wednesday before dropping to 55 on Thursday. The normal high in Boston is 67. New York City's 79 high on Tuesday was expected to rise to 82 on Wednesday and Thursday, six degrees above its seasonal norm.
In spite of cooler temperatures forecast for Boston, quotes at the Algonquin Citygates rose by 9 cents to $3.77. Gas bound for New York City on Transco Zone 6 rose 5 cents to $3.24, and packages on Tetco M-3 Delivery added 3 cents to $3.22.
"The quotes on Algonquin are probably just a result of the screen advancing." He added that when the physical market was unable to gather much guidance from weather, it would often follow the screen. "Pricing will be relative to what the Hub is in general, so if it's just a small move on Nymex, physical prices are likely to follow. The ability of Nymex to push and pull the physical market is subject to constraints, though."
Those constraints were evident in the Marcellus Shale region. Quotes on Transco-Leidy was flat at $2.19, and gas delivered to Tennessee Zone 4 Marcellus shed 11 cents to $2.18.
In Appalachia, gas storage injections are going hot and heavy. Industry consultant Genscape reported that "DTI Injected 10.0 Bcf and TCO injected 9.3 Bcf for the week ending May 15. Dominion Transmission injected 10.0 Bcf into the ground for week ending May 15th. This is the seventh week of injections for Dominion Transmission, [and] Dominion has injected 37 Bcf so far in the past five weeks. Dominion Transmission gas inventory is currently at 66.0 Bcf [or]... -55.0 Bcf lower than the same time last year.
"Columbia Gas injected 9.3 Bcf for the week ending May 15th, [and] injections this year are slower than that of the previous year. The injection for the same gas week last year was 8.9 Bcf. Columbia Gas inventory is currently at 56.8 Bcf, +25.1 Bcf higher than the low of 31.7 Bcf on April 4th. Storage inventory is currently -42.9 Bcf lower than the same time last year."
Quotes for Wednesday delivery on Columbia TCO rose a penny to $4.49 and gas on Dominion South was flat at $3.17.
Rockies points proved to be among the day's leaders. On CIG Mainline, Wednesday packages were seen at $4.19, up 5 cents, and gas at the Cheyenne Hub added 10 cents to $4.28. At Opal next-day gas rose 5 cents to $4.30, and parcels on Transwestern San Juan added 5 cents to $4.31.
Futures traders saw the day's advance from revised long-term weather outlooks. "This market posted a sharp advance following overnight price slippage to as low as $4.43. The primary source of support in our view was a shift toward some sustainable hot temperatures within some of the one- to two-week weather models," said Jim Ritterbusch of Ritterbusch and Associates.
"This first significant indication of a CDD upswing appeared to have an outsized impact with much of today's advance likely to be offset by Thursday. We look for the EIA storage report to tilt bearish with our 106 Bcf injection coming in some 16 Bcf above average and year ago supply builds. Although our longer-term view remains bullish and we continue to leave open fresh highs above $4.80 when looking across next month, we still see some wide price swings in both directions as this month of May winds down. Ideally, we had been looking for a price down draft into the $4.30-4.40 zone as an opportunity to establish a meaningful long position. But, given the magnitude of today's renewed upswing, such a decline now appears out of range unless a bearish shocker is forthcoming in Thursday's EIA guidance. The cash market also rebounded back to above the 4.50 level today and we still see this firm physical trade as forcing a sustainable premium into June futures relative to the July contract into next week's expiration."
Technical analysts are looking for at least a short-term selling opportunity. "[We] will be counting any rally as an opportunity to sell; our only concern is when to pull the trigger," said Brian LaRose, technical analyst at United ICAP. "If a minor correction is in progress from the $4.289 low, natgas should not get back above $4.679-4.757. However, if a larger degree ABC pattern is unfolding from the $4.221 low, there is room to $4.920-5.089 minimum. Will need to rely heavily on the short-term technicals for a sell signal."
Tom Saal of INTL FC Stone in Miami in his work with Market Profile was looking for the market to test Monday's value area at $4.522-4.488 before moving on and testing $4.442-4.424. He says "maybe" the market will test $4.789 to $4.731.