Physical gas prices for Thursday delivery staged a modest advance Wednesday, with nearly all points in the black by a few pennies up to a nickel. Those few locations that eased did so on light volume and slipped just a penny or two.
Great Lakes and California points proved to be some of the greatest gainers of a nickel or more, but on average the physical market was higher by 4 cents. At the close of futures trading, June had skidded 7.9 cents to $4.473 and July was off by 7.5 cents to $4.478. July crude oil rose $1.74 to $104.07/bbl.
Prices for Thursday delivery into Great Lakes points firmed as weather forecasts called for temperatures to drop below normal. Wunderground.com predicted that Chicago's Wednesday high of 82 would drop to 63 Thursday and reach 65 Friday. The typical mid-May high in Chicago is 72. Detroit's high Wednesday of 84 was seen falling to 69 Thursday and Friday, three degrees below normal.
Tom Skilling of the Chicago Weather Center said Thursday would be partly sunny and cooler. The highest temperatures were to be "around 70-degrees, but northeast winds keep readings in the upper 50s to lower 60s along the lakefront," with clear skies Wednesday night.
Flows out of the Rockies into the Midwest took a hit earlier in the week as a compressor failure dropped volumes from 1.2 Bcf/d to 0.5 Bcf/d. According to industry consultant Genscape Inc., Rockies Express Pipeline (REX) flow resumed to 1.1 Bcf/d after the segment 290 force majeure was lifted.
"REX declared a force majeure on Sunday when a defective weld was identified on its mainline downstream of the Turkey Compressor Station. Rockies exports out of REX decreased to 0.5 Bcf/d for Monday and Tuesday compared 1.2 Bcf/d last week," said Genscape analysts. The force majeure was lifted Tuesday and Wednesday's "flow through segment 290 bounced back to 1.1 Bcf/d. During the REX flow interruption, gas flowed out of the Rockies via TransColorado, NWPL North, and Ruby to the west, [and] as soon as REX flows to the East resumed, flows out of the Rockies on TransColorado, Ruby, and NWPL North decreased.
"Segment 290 is east of the Kansas /Missouri border. The flow interruption affected interconnects to Midcontinent hubs, including deliveries to Panhandle and ANR." Genscape put the declines for Monday at 940 MMcf/d and 776 MMcf/d for Tuesday.
The loss of flow to the East didn't faze Great Lakes buyers. "We haven't been buying the last couple of days because we have been waiting for the weekend," said a Michigan marketer. "We were hearing a quote of $4.74 on Consumers, and we were paying less than that for last week. We will probably hold off until the weekend as prices usually go down for the weekend and with the holiday it's a four-day buy."
Gas at the Joliet Hub rose 5 cents to $4.56, and deliveries on Alliance added a nickel as well to $4.57. At the Chicago Citygates next-day parcels rose 5 cents to $4.57 and on Consumers gas for Thursday was seen at $4.68, up 3 cents. Deliveries on Michcon gained 4 cents to $4.69.
On the West Coast, prices firmed as PG&E issued a system wide OFO for Wednesday. Genscape reported that PG&E issued the OFO because of high inventory levels with a 5% tolerance band. "This is a stage 1 OFO with a noncompliance charge at 25 cents/Dth...The temperature forecast for [Thursday] on the PG&E system is 65.1 degrees with system demand expected to be around 1,755 MMcf/d. Storage injections are expected to decline at Wild Goose Storage and Lodi Storage facilities, [and] deliveries at Ruby's interconnect are expected to decrease from yesterday."
According to Genscape, PG&E's inventory level is currently lower than in the past three years. The year-on-year deficit is now more than 80 Bcf, and California likely will rely on PG&E inventory to meet the cooling demand this summer. "If the summer turned out even slightly warmer than normal, PG&E storage inventory will likely enter the winter with more than 30 Bcf less gas in the ground compared to last year," said analysts.
Parcels at Malin added 5 cents to $4.41m and next-day packages at the PG&E Citygates was steady at $4.97. At the SoCal Citygates Thursday gas came in at $4.86, up a penny, and at the SoCal Border next-day deliveries changed hands at $4.64, up a nickel. Gas bound for California and the West on El Paso S Mainline gained 7 cents to $4.74.
Traders Thursday will get an opportunity to assess another super-sized build in inventories when the Energy Information Administration issues its latest storage report. Last year 90 Bcf was injected and the five-year average also is 90 Bcf. A Reuters survey of 28 traders and analysts revealed a 102 Bcf average, and analysts at Citi Futures Perspective calculate a 102 Bcf injection as well. At United-ICAP, analysts are looking for a 111 Bcf increase.
Tuesday's 8-cent rise may have gotten ahead of itself. "Prompt-month gas futures climbed stoutly yesterday based on general hot weather hype from various news media sources regarding June demand potential," said Alan Lammey of WeatherBELL Analytics in a Wednesday report to clients. "In fact, June gained about 2% on the day amid the weather rhetoric. However, the fact is temperatures during month of June don't appear to be as hot as they're being portrayed to be by the media outlets -- and as absurd as it sounds, the hype may simply be the result of a slow news week for the U.S. natural gas market. With that said, it will be warm in areas of the U.S., but probably not the blowtorch conditions that are being depicted.
"Once the market gets a better 'real understanding' that June doesn't appear to be that much of a big natural gas demand standout -- and then couples that realization with record supply leading to stout weekly storage numbers -- it may lead to some further price weakness in the days and weeks ahead," said Lammey. "The next issue to watch is the potential for early tropical season activity to materialize. But keep in mind that typically early in the hurricane season, most tropical action results in 'demand reduction' events via cooling rains and power outages rather than interruption of supply."
Hurricanes? What hurricanes? The 2014 Atlantic hurricane season is expected to produce fewer than the average number of tropical storms and hurricanes, according to forecasters at AccuWeather.com, who said tropical development could be altered by the onset of an El Nino even in late summer of fall (see Daily GPI, May 15). The forecasters said they expect 10 named storms, including five hurricanes, two of them major (Category 3 or higher), to form in the Atlantic Basin after the hurricane season begins on June 1. Forecasters at Colorado State University recently said in their first tropical forecast of the year that they too expect an El Nino event -- the warming of water temperatures in the central and equatorial Pacific Ocean -- to limit the number of hurricanes that form in the Atlantic Basin (see Daily GPI, April 11).
Even with a sub-par hurricane outlook, others aren't buying a bearish scenario. "Even with our first triple-digit storage build on the horizon, [natural gas] has strongly recovered from last week's low of $4.289," said United ICAP Vice President Drew Wozniak in a Tuesday morning note to clients. "My thesis has been that storage in the shoulder months has no chance of recovering to even the five-year minimum level before the heat sets in...not by a long shot, and we are likely to enter the withdrawal season at the end of October at a very low level. How can this be with all the shale gas production? It is simply not enough."
Hyped or not, forecasters are calling for near-term modest warmth. "No major forecast changes today [Wednesday], but the outlook trends a bit warmer again for the Midwest into the East next week," said Commodity Weather Group in its morning outlook. "The peak day for Chicago though is expected to be 85 F on Monday's Memorial Day holiday, while the East Coast should see ranges from the upper 70s in Boston to the lower to middle 80s in the Middle Atlantic during the abbreviated following workweek.
"Humidity is not expected to be exceptional with lows in the lower 60s mostly. The South continues to see seasonal to only slightly above-normal temperatures, while Western heat is strongest in the interior and still more directed toward northern versus southern California. The 11-15 day looks more variable and the model consensus is cracking with the American cooler and Canadian warmer than our outlook today (no major heat expected)," said President Matt Rogers.