Cash prices moved sharply lower on Friday for the Columbus Day weekend despite the surprisingly rapid rise in the natural gas futures market. While November futures ended the day up more than 30 cents, mild weekend weather and weak demand left cash with nowhere to go but down. Most points tumbled 10-20 cents, which put many locations back down near bidweek levels.

The Henry Hub, for example, fell below its $3.80 bidweek index after reaching the $4.40s early in the month. Southern California Border and Transco Zone 6 New York quotes fell below bidweek levels. However, many points didn’t quite reach the lows registered the previous Friday. PG&E Citygate quotes were averaging in the mid $3.20s because of concerns about a high linepack operational flow order.

“Fear of the OFO brought things down,” said a power generator. “Malin prices traded as low as $3.16. Everyone saw it coming. Nobody liked it, but it was a fact of life. The weather is very mild. With these types of loads or lack of loads, the 3% tolerance isn’t going to help us much. Considering weekend burns, 3% is still pretty tight. They are forecasting the loads to get crushed and I cannot disagree with it. We’re a generator and we have a lot of gas we don’t need because we won’t be burning it.”

A Northeast region trader noted that cash continued falling throughout the trading session Friday. “There’s nowhere to put the gas. New York was at least 15-20 cents down,” she said. “The lowest deal we did was $3.99 and on Thursday our lowest was $4.25 so that’s a quarter. We certainly didn’t do as many sales as we wanted to. It’s just the holiday weekend with normal weather. I hope we pick back up next week on the reaction to today’s futures rally.”

Most observers were shocked that November futures soared 31 cents to $4.146 Friday apparently on rumors and delayed reaction to the low 42 Bcf storage injection the Energy Information Administration reported on Thursday.

“It shot up like no big deal,” noted one surprised marketer. “We’ve been bullish but didn’t see this. Someone mentioned a rumor of something going on at the Henry Hub, a pipeline bursting or something, but that hasn’t been confirmed.” A ChevronTexaco spokeswoman said it was “just a rumor” and that the hub was operating normally. However, she admitted getting several calls about it.

“Amazing what a little rumor can do, huh?” the marketer said. “We also have rumors about some large players who exited the trading business, namely AEP, cleaning up their positions. Who knows? It was squirrely today. In our opinion, when it started up, it clipped through a few significant areas that triggered buying and sent it roaring. It really didn’t affect the cash market though.”

Although the weekly storage injection was on the high end of expectations because many thought Hurricane Lili hindered injections even more, it still was far short of injections during the same week last year (73 Bcf) and left the storage surplus at only 82 Bcf more than last year. Working gas in storage stands at 3,080 Bcf compared to 2,998 Bcf at the end of the same week last year. “The storage data from last week was…bullish rather than bearish and this is maybe something of a second effort to price in the true economic significance of the data,” said Tim Evans, futures analyst with IFR Pegasus.

Evans also said there was a reaction to a new weather forecast showing colder temperatures in the Great Lakes and Northeast regions. The National Weather Service’s six- to 10-day and eight- to 14-day outlooks both show below normal temperatures across nearly the entire country except Florida and the East Coast. Above normal temperatures are expected in Florida and normal temperatures are expected up the East Coast. The six- to 10-day also shows above normal temperatures over Northern California.

Private weather forecaster Weather Services International said earlier this month that it is expecting colder than normal temperatures during October and November in the Northeast and Great Lakes regions (see WSI’s web site: https://wws1.wsi.com/).

Salmon Smith Barney meteorologist Jon Davis was a little bit timid with his new forecast for a normal winter. In the forecast, which was released last week, Davis said that this winter he “expects the continental United States to experience a winter that features more normal temperatures on a national basis compared to the extremely warm conditions of a year ago.”

In contrast, the National Weather Service is expecting above normal temperatures this winter because of a weak El Nino.

Davis along with most other meteorologists got burned badly by last winter’s near record above normal temperatures. Most weathermen were forecasting normal to colder than normal temperatures. Davis said last winter was likely to be near or among the top 33% of the coldest winters in last 106 years (see Daily GPI, Oct. 17, 2001). Instead, last winter was the fifth warmest in the past 108 years.

Despite the forecasts, however, current temperatures are mild with highs in the 60s and 70s and lows in the 50s and 60s across most of the nation. The southern Rockies, Upper Midwest, Pacific Northwest and part of the Midwest were expected to have lows in the 40s on Friday. However, some colder temperatures were expected to roll in over the weekend.

Meanwhile, some gas production shut ins in the Gulf of Mexico remain from Hurricane Lili, according to the Minerals Management Service (MMS). The MMS said on Friday that 982.36 MMcf/d of gas and 147,144 b/d of oil remained curtailed in the Gulf. Only seven platforms were still evacuated, however, compared to 748 platforms and 96 rigs the previous Friday, a day after Lili came ashore in Louisiana.

MMS spokesman Barney Congdon said during the week that Lili caused far less damage than expected, and the damage offshore was not as severe as the impact onshore. So far, producers have reported damage to five platforms and five rigs, some of which were actively producing gas and oil.

Congdon noted that Gulf structures have to meet stricter engineering standards today than when Hurricane Andrew wiped out Gulf production and caused lengthy downtime in 1992. He also noted that many older structures were wiped out by Andrew and replaced by newer structures that are better equipped to handle major hurricanes.

The 982 MMcf/d in curtailed Gulf production Friday, even combined with maintenance on some pipes, failed to prop up Gulf cash quotes. “New York prices did drop below index but the production area is not under index yet,” noted a marketer. “But Transco Station 65 came down quite a bit from the premium it had been carrying.”

Maintenance at Station 62 that was ending on Friday on Transco was taking out 1 Bcf/d and pushing Transco quotes 10 cents or more over the hub on Thursday, but Station 65 came down 20 cents to only about a 5-cent premium to the Hub on Friday.

The only region that experienced price increases on Friday was the Rockies. Colder temperatures boosted Opal quotes about 15 cents on average to around $1.80 which was nearly 50 cents above bidweek.

“The Rockies have been trading stout,” said a producer. “It seemed a little high on Wednesday, and it has that same feel today [Friday]. Prices stayed strong all morning. It could be the potential for cold weather this weekend, (even though it is not very cold right now) or it may just be perceived shortness, but Rockies cash should be staying strong on Monday because it didn’t come off at the end of trading.

“There also is some cold weather in the Northwest around Seattle and Portland, supporting Stanfield. AECO also seems relatively strong. Plus, Northwest power producers seem to need the gas,” she said.

Nighttime low temperatures were expected to drop into the mid-30s in the northern Rockies and Pacific Northwest over the weekend.

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