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Firm East Keeps Market Positive; Futures Plunge Ahead of Storage Report

Gainers generally outnumbered losers in Wednesday physical gas trading for Thursday delivery, and those points failing to make it to the positive side of the trading ledger were typically lower by only a penny or two.

Mid-Atlantic locations were higher by upwards of a dime, and New England trading was mixed. Marcellus points gained close to a dime, but most producing regions were up only a penny or two. Futures tumbled ahead of what is expected to be another triple-digit build in Thursday's Energy Information Administration (EIA) inventory report.

At the close, November had dropped 10.2 cents to $3.855 and December declined 10.1 cents to $3.951. November crude oil fell $1.54 to $87.31/bbl.

A softening power environment, along with a return to service of a major pipeline, set the stage for mixed next-day gas prices in New England. ISO New England forecast that peak power loads would exhibit a steady decline into the end of the week. Wednesday's peak load of 16,300 MW was expected to slide to 15,700 MW Thursday before reaching 15,000 MW Friday. The New York ISO called for peak load of 18,995 MW Wednesday to fall to 18,617 MW Thursday and 18,259 MW Friday.

IntercontinentalExchange reported that Thursday peak power at the ISO New England's Massachusetts Hub eased $2.81 to $35.94/MWh, and next-day peak power at the PJM West terminal lost 46 cents to $40.79/MWh.

Industry consultant Genscape Inc. noted that Algonquin said Tuesday it had “completed maintenance on the 24-inch diameter line between the Cromwell and Burrillville Compressor stations ahead of schedule. Operational capacity will be restored to 859 MMcf/d, up from 675 MMcf/d during the maintenance period.

“During the maintenance, which began Sept. 20, flows through Cromwell averaged 580 MMcf/d, down from an average of 695 MMcf/d for the month of July prior to the outage. Now that the maintenance and the unplanned outage at the Southeast Compressor station are over, Algonquin can flow at its regular seasonal operational capacity.

“The event initially coincided with a spike in heat-driven demand, creating a brief run-up at Algonquin Citygate basis. However, since then, AGT basis has been relatively suppressed due to weak demand, averaging (91 cents) since Sept. 20. Evening flows through Cromwell were at 610 MMcf/d for today’s gas day."

Forecasters were calling for rain with temperatures about normal along the Eastern Seaboard.

"After dry weather at midweek, rain will threaten the New York City area later Friday into Saturday,” said AccuWeather.com meteorologists. “How much rain falls at the end of the week will depend on the track and speed of a storm system moving up from the southwestern United States.

“A chunk of moisture from Tropical Rainstorm Simon will break off and travel swiftly northeastward, while the rest of the moisture stalls over the south-central states.

"Temperatures the next few days will be within a few degrees of average, which range from a low in the lower 50s F to a high in the middle 60s, [but] looking ahead to next week, temperatures will trend upward and highs may be in the 70s on multiples days.

“It looks like a southwesterly flow of air will bring in warmth for a few days next week, but that warmth may be interrupted by a rainstorm," meteorologist Elliot Abrams said.

AccuWeather.com expected that New York City's Wednesday high of 72 degrees would drop to 66 Thursday and 64 by Friday. The normal high in New York is 66. Philadelphia's high of 75 Wednesday was anticipated to fall to 68 Thursday and 64 Friday, 5 degrees shy of the seasonal norm. Washington, DC's 80 high Wednesday was seen falling to 73 Thursday and dropping to 69 Friday. The normal high is 71.

Gas for delivery Thursday at the Algonquin Citygates rose 13 cents to $3.34, and packages at Iroquois Waddington were seen 2 cents lower at $3.83. Gas on Tennessee Zone 6 200 L gained 8 cents to $3.45, but gas on Millennium shed 6 cents to $1.83.

Gas headed for New York City on Transco Zone 6 added a stout 12 cents to $1.98, and deliveries to Tetco M-3 were higher by 11 cents to $1.92.

Marcellus points rose. Gas on Transco Leidy gained seven cents to $1.86, and packages at Tennessee Zone 4 Marcellus gained four cents to $1.75. Next-day gas on Dominion South rose 8 cents to $1.86.

Producing regions added about a penny. At the Cheyenne Hub and the Opal plant tailgate, Thursday gas came in up a penny at $3.74 and $3.73, respectively, and on Northwest Wyoming Pool, next-day gas was up two cents at $3.66. Gas at Kern River was unchanged at $3.72.

Analysts and traders are expecting a build in Thursday's inventory report along the lines of the 112 Bcf reported last week. Last year 91 Bcf was injected and the five-year pace stands at 84 Bcf.

If estimates are correct, another sizeable reduction in the storage deficit will take place. Houston-based IAF Advisors forecasts an increase of 109 Bcf, and a Reuters poll of 23 traders revealed an average 108 Bcf with a range of 99 to 118 Bcf. Denver-based First Enercast is looking for 104 Bcf.

Traditionally, natural gas prices make a preseason rally into late November, but analysts argue that the pending deluge of gas from newly minted wells in the Utica and Marcellus shales could change all that.

"[W]e warned that a deluge of midstream transport projects would likely accelerate production growth in November, effectively preventing the traditional autumn price rally," said BNP Paribas analyst Teri Viswanath, director commodity strategy for natural gas, in a note to clients. "Last week's release of EIA's monthly data showing an on-trend increase in production only serves to underscore our initial supply concerns.

"Despite known pipeline constraints, newly connected wells in the Marcellus and Utica shale plays contributed to continued supply growth this summer, with total dry gas production averaging 70.4 Bcf/d in July, according to EIA, or a year-on-year increase of 3.45 Bcf/d.

“We anticipate that this growth will likely accelerate over the winter as new pipelines enable currently stranded supply to reach new markets. According to our analysis, winter production should average 4.25 Bcf/d over year-ago levels.

"Whether in anticipation of this supply growth or more simply a reaction to the acceleration in restocking, a sub-$4 delivery price for November leaves little doubt that supply concerns are once again resurfacing," she said.

For the moment, market technicians aren't willing to concede the market to the bears.

"Still stuck in neutral territory; to restore the up trend bulls need to push natgas back above $4.106-4.116," said United ICAP analyst Brian LaRose in closing comments Tuesday. "To restore the down trend bears now need to crack $3.879-3.853, 3.793-3.771 and 3.714. Both have their work cut out for them. From a purely technical standpoint, bulls have yet to relinquish control. So for the moment our bias remains towards the bullish argument."

Tom Saal, vice president at INTL FC Stone, in his work with Market Profile was looking for the market to test Tuesday's value area at $3.959 to $3.919. The Market Profile methodology during the first two days of the week calculates an "initial balance" from which prices may move higher or lower.

Trading requires a buy if prices break to the upside of the initial balance and conversely a sale should prices drop through the lower boundary of the initial balance. Saal places the initial balance currently at $3.968 to $3.887 and places upside targets at $4.009 and $4.049 and lower targets at $3.847 and $3.806.

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