Physical gas for Tuesday delivery rose hard and often in Monday's trading, with forecasts of pervasive heat and humidity along the Eastern Seaboard lifting quotes at some points more than a dollar, and only a handful of locations slipped into the loss column. The Northeast led the pack with the day's biggest gains, but the Mid-Atlantic was a close second. Appalachian prices were firm as were quotes out of the Rockies. At the close of futures trading, July had retreated 3.2 cents to $4.707 after trading overnight as high as $4.886. August slipped 3.0 cents to $4.718 and July crude oil dropped a penny to $106.90/bbl.
Next-day gas at New England points soared as forecasts called for heat and humidity throughout the East.
"Sweltering heat and humidity will advance into the Ohio Valley and mid-Atlantic this week, bringing the hottest weather of the year to date for some. In the wake of a weekend that brought widespread low humidity and comfortable weather to the Ohio Valley and mid-Atlantic, heat and humidity will return in a big way,” said AccuWeather.com meteorologists.
"The hottest weather of the year so far will spread from the Ohio Valley to the mid-Atlantic states Tuesday into Wednesday," said meteorologist Brett Anderson. Columbus, OH, Pittsburgh and Philadelphia “will be among a host of other cities that will hit 90 for the first time this year. New York City will make a run for 90, but may fall just shy. Washington, DC is forecast to have at least three days in a row with temperatures reaching 90 or higher. When this occurs in the northern states, it is considered to be a heat wave. High temperatures may also challenge record highs on one or more dates this week in the nation's capital."
He added that temperatures alone may not tell the whole story. "High humidity will pair up with the heat to create dangerously hot conditions."
Monday's high of 73 degrees in Boston was expected to jump to 80 Tuesday and 86 on Wednesday, well above the normal high of 77, according to AccuWeather.com. Philadelphia's Monday maximum of 88 was seen advancing to 90 on Tuesday and 92 Wednesday; the seasonal high is 83. Charlotte, NC's Monday high reading of 91 was expected to hit 93 Tuesday and 94 Wednesday. The normal mid-June high is 87.
Temperatures combined with maintenance work to limit supplies at some points. A source reported that work was being conducted at Tennessee Station 245 and 100% of Secondary Out of Path nominations was cut, above normal curtailments.
Deliveries to the Algonquin Citygates jumped $1.08 to $5.72, and gas at Iroquois Waddington added 31 cents to $5.11. On Tennessee Zone 6 200 L, next-day gas came in at $5.06, up 79 cents.
Packages into the Mid-Atlantic felt the heat. Gas bound for New York City on Transco Zone 6 added 71 cents to $3.80, and gas on Tetco M-3 rose 53 cents to $3.67.
Wide spreads were evident. Gas on Columbia TCO rose 4 cents to $4.63, but gas on nearby Dominion South added 18 cents to $3.33. "There are people taking advantage of that spread where they can, but obviously not enough people are able to because otherwise the Columbia TCO market would be a lot lower," said an industry veteran.
Prices in producing regions were also strong. Gas on CIG for Tuesday delivery added 4 cents to $4.44, and parcels at the Cheyenne Hub gained a nickel to $4.56.
In spite of failing to clear resistance in the $4.90 area, technical traders are confident the market is poised to move higher. "Ultimately, I think the market will have a swing to the upside. We did break $4.75 a couple of times already and actually made a new high, so I think there is potential to the upside here," said a New York floor trader.
"We have to see what the next couple of days brings, and what the number is” on storage when the Energy Information Administration reports on Thursday.
In spite of the bullish argument that storage refill will be insufficient, risk managers are counseling protection from lower prices.
"We have had large builds for the past six weeks helping to increase the depleted storage levels. However, levels are still 34% lower than last year at this time," said DEVO Capital Management President Mike DeVooght. "U.S. domestic production continues to increase, and weather hasn't played a huge role in either direction currently. Fundamentally, you can make a case in either direction, but for hedgers, we feel natural gas rallies near the $5.00 level should be used as an opportunity to lock in some forward pricing. On a trading basis, we will hold current positions."
DeVooght suggested that trading accounts hold on to a short July futures position initiated with the April contract at $5.00-5.10. End-users should stand aside, and producers should continue to hold the remainder of a short May-October strip from $4.20-4.30, as well as a second short May-October strip placed at $4.50.
"Gas prices have now advanced 13%, or nearly 60 cents, over the past month as severely depleted storage levels and the risk of increased air conditioning loads during the prime months of the upcoming summer cooling season provide a boost to the market,” said Tradition Energy’s Eugene McGillian.
"Robust production levels of gas and expectations of above-average storage injections in the coming weeks should provide resistance to gas market rallies in the coming days. Weather forecasts, after the next five days of above-normal temperatures across much of the East, are expected to shift slightly cooler to normal to above-normal temps during the latter part of this month.”
Commodity Weather Group in its Monday morning forecast was looking for near-term warmth stretching from Iowa to North Carolina. "The short range trended hotter over the weekend with less rain risks for the Midwest and East Coast this week.” Temperatures were expected to surge into the lower 90s for Chicago to Cincinnati Tuesday and Wednesday, “with middle 90s into Philadelphia and mid-to-upper 90s DC (peaking Wednesday)," said President Matt Rogers.
"Even Boston and New York City are aiming for a burst of upper 80s to low 90s by Wednesday's peak before a cool front sweeps through,” he said. “The latest trends for the six-10 day are back to near seasonal levels for the Midwest and East. Texas mainly sees closer-to-normal heat this week and next, while the West is generally same to cooler, but some hotter weather rebuilds for the interior in the six-10 day and maybe flirts with the coastal areas too by the 11-15. For the East, the 11-15 starts slightly cooler, but then another burst of heat may return toward the turn of the month."