Spot natural gas prices for Wednesday delivery posted another strong day of advances as below-normal temperatures across northern-tier market points contrasted with above normal readings in metropolitan areas further south. Gains were seen across the board with only thinly traded market point seeing a loss.
Over in the futures arena, traders seemed unimpressed with the first sighting of tropical development. At the close July futures had risen 1.7 cents to $4.629 and August had added 1.8 cents to $4.616. July crude oil gained 19 cents to $102.66/bbl.
Robust double-digit price gains were seen in the East, Northeast, Appalachia, and Marcellus as weather conditions showed a curious mix of below-normal temperatures in more northerly locations, and above normal forecasts in the Mid-Atlantic. Wunderground.com predicted the high in Boston of 75 degrees Tuesday would drop to 65 Wednesday and 61 on Thursday. The normal high in Boston this time of year is 72. Chicago's 80 high Tuesday was seen plunging to 62 Wednesday before recovering to 68 on Thursday. The normal high in Chicago is 76. Detroit's 83 Tuesday high was anticipated to drop to 67 Wednesday and recover to 72 by Thursday. The seasonal high for Detroit in early June is 73.
Farther south, temperatures were seen well above seasonal norms. Wunderground.com anticipated that New York City's 85 high on Tuesday would ease to 83 Wednesday and drop to a more seasonal 75 on Thursday. The normal high in New York this time of year is 76. Washington DC's 86 high on Tuesday was forecast to hold for Wednesday and drop to 80 by Thursday. The normal early June high in the Nation's Capitol is 81.
The National Weather Service in Washington, DC, said a cold front will enter the middle-Atlantic Wednesday night and an area of low pressure riding along the front will move to the coast Thursday morning. High pressure is expected to build into the region Thursday night, moving over the area for the weekend. A cold front is expected to approach the middle Atlantic region Monday.
At the Algonquin Citygates Wednesday deliveries rose by 32 cents to average $3.94 and gas into Iroquois Waddington gained 3 cents to $4.87. Packages on Millennium were higher by 15 cents to $3.22.
Gas on Tennessee Zone 6 200 L dropped 73 cents to $3.91 on thin volume. Gas bound for New York City on Transco Zone 6 rose by 41 cents to $3.67 and parcels on Tetco M-3 were seen 29 cents higher to average $3.59.
Industry consultant Genscape reports solid production coming out of the Marcellus and Appalachian points. "Appalachia production decreased slightly week-on-week, from 14.2 Bcf/d to 14.1 Bcf/d, [and] production averaged 14.3 Bcf/d in the past month, compared to 13.7 Bcf/d in the month before. Production increased by +4.3 Bcf/d year-on-year in the past month," the company said in a report.
"The gas rig count in the East decreased by one rig to 124 in the past week, [but] a +23 rig increase from a year ago. Most of the rig count increase in the East is from horizontal rigs. Gathering systems are coming online at various segments. Dominion also increased the capacity at the interconnection with Transco's Leidy line."
It added that "Processing plant issues helped to curb West Virginia production this week with the state down on average ~60 MMcfd. A lighting strike at MarkWest's Houston facility briefly shut down all operations before engineers determined that a heat exchanger required for only one unit was damaged."
Next-day gas on Columbia TCO added a dime to $4.57 and gas on Dominion South sported an advance of 23 cents to $3.44. Marcellus locations gained ground. Gas on Transco Leidy was higher by 5 cents to $2.30 and deliveries to Tennessee Zone 4 Marcellus rose by 11 cents to $2.25.
Weather traders got their first whiff of tropical activity as the National Weather Service (NWS) in its 2 p.m. EDT report noted a trough of low pressure over the Bay of Campeche. It was producing a large area of cloudiness and disorganized showers over much of the southern Gulf of Mexico, but strong upper-level winds were expected to limit development over the next few days. NWS pegged the likelihood of formation into a tropical system at 10% over the next 48 hours and 20% over the next 5 days.
Analysts saw something of a disconnect between Monday's 7-cent rally and current fundamentals. "[A] market such as this in which a huge supply deficit exists will always be able to offer some occasional 1-2% price rallies on negligible fundamental inputs," said Jim Ritterbusch of Ritterbusch and Associates. "Furthermore, speculative entities have recently been rotating back toward the short side of the market and some covering with the start of a new month may have spurred some of today's gains. Unless the temperature views that stretch out to about mid-month shift, we don't expect last week's highs at the $4.66 area to be violated during the next couple of sessions.
"Additionally, Thursday's usual price volatility could be downsized a notch as the exit from the shoulder period will enable the market to tolerate small misses of around 4-5 Bcf with more focus shifts to the weather factor. We are expecting an injection of 107 Bcf on Thursday, a figure proximate to last year and larger than the 5 year average by about 14 Bcf. Some early estimates suggest that our expected figure will be toward the low side and hence could receive a bullish reception. In any event, we would suggest maintaining any recently established longs but we would suggest adding to bullish holdings on pullbacks to around [Monday's] lows that might develop prior to Thursday's release."
Current market strength appears in part derived from supportive near-term weather and a robust physical market, but WSI Corp in its morning 11- to 15-day outlook said the "period forecast is cooler across the interior West in through the Plains and Great Lakes region late in the period when compared to [Monday's] forecast. Forecast confidence is considered near average standards as a result of reasonably good large-scale model agreement."
It did admit that "There are some slight warmer risks to the forecast over PJM in through the Northeast under a building warm ridge, however there is risk across the coastal Northeast for a back-door cold front passage."
Consistent with the developments in the Bay of Campeche WeatherBELL Analytics in a morning report said "Any development over the Gulf will be slow over the coming week to 10 days."
"Until the ECMWF [European model] is aboard with this, I am reluctant to jump on the GFS [Global Forecast System] storm idea. The ECMWF Weekly outlook shows an enhanced chance of tropical development in the Atlantic coastal waters, but not until Weeks 3 and 4," said WeatherBELL meteorologist Joe Bastardi.
If the methodology of Market Profile proves correct, prices in the near term will work lower before advancing. Tom Saal, in his work with Market Profile says to look for the market to test Monday's value area at $4.586 to 4.540 before moving on and testing $4.810 to $4.754. He says for "Buyers-be-ready, [and]strength appears to be building on the back years: Cal'15, Cal'17 and Cal'19."