Wednesday’s screen spike, coupled with stable or increasing cooling demand, resulted in sharply higher prices across the board on Thursday. As expected, northeastern citygates averaged about $10 or more in a spot market that recorded gains ranging from C30 cents (Westcoast Station 2) to about 75 cents (Waha). Nearly all Gulf Coast points averaged more than $9.
Another large futures increase seemed to portend a continuation of rising prices Friday. However, there was some doubt about that because cold fronts moving southward from Canada will be lowering temperatures this weekend from the Rockies eastward into the upper Great Plains, and also from the Great Lakes into the Northeast. Also, there’s the usual weekend drop in industrial load to consider.
The Energy Information Administration’s estimate of a 43 Bcf increase in storage inventories during the week ending Aug. 5 was fairly well in line with prior expectations but considered quite bullish in comparison with historical data (see futures story). It even reduced the surplus over year-ago levels to 21 Bcf as the East Region provided all but 4 Bcf of the build. In response, Nymex traders tacked on another 23-cent gain to Wednesday’s 42.2-cent spike in September futures.
Despite the impressiveness of gas screen advances, crude oil hogged the futures spotlight again Thursday. It may be getting repetitive by now, but crude for September delivery set prompt-month records again of $66/bbl (intraday) and $65.80 (daily settlement). Its heating oil and unleaded gasoline cousins also saw major advances. Analysts generally chalked up the further oil gains to the fear factor, but acknowledged that concerns about global supplies, U.S. refinery outages and an active hurricane system have some validity.
Waha prices led Thursday’s price parade upward as a constraint on reaching the Katy/Houston Ship Channel marketer was lifted. Energy Transfer Co. completed replacement of a 2-mile section of Oasis Pipeline near New Braunfels, TX early Thursday afternoon, allowing free flow of Waha supplies eastward again.
A Gulf Coast producer attributed the cash spikes to “two things: definitely the heat, and the screen is just screaming.” When futures blew through $9 Wednesday, it brought out a lot of short-covering and built momentum for Thursday, he said. “You just don’t know what to expect at this point; it’s an emotional roller-coaster,” he added. “Every morning I get shocked by the screen, and even though it seems it can’t get any higher, it does.”
While hesitant to make a call, the producer said prices may see a little pullback Friday even with Thursday’s new futures run-up. Temperatures in the Northeast market area will be getting a little milder over the weekend, he said, but there should still be a lot of cooling load. He noted that Gulf Coast-Northeast basis remained strong or got even stronger, with Henry Hub quotes trailing market-area citygates by 80-90 cents Thursday, putting variable transportation costs easily in the money.
Peter Bryant of TBC Confuels in Houston expects the market to have “a dramatic sell-off” eventually, but said prices won’t plunge nearly as much as they did before when the market was in comparable rarefied heights. He noted that producers “just would not sell futures” earlier when prices were this high. “If you’re waiting for $5-6 gas again, you’re in for a long, tough wait,” Bryant said. However, he sees some artificiality in the current stratospheric market, saying, “It seems like everybody wants to hype stuff as much as they can.” As anecdotal evidence, he offered a TV network program Thursday morning in which a newscaster breathlessly sounded like the sky was falling as she discussed energy markets.
Although he saw a possibility of more cash price gains Friday, Bryant was dismissive of hurricane fundamentals supporting the market. “You’ve got to have an Ivan to really hurt [supplies]; a couple of days of shut-ins isn’t going to matter much,” he said.
Don’t count out Irene yet as a potential negative market influence. After being downgraded to a tropical depression amid doubts that she would even reach Bermuda, much less the East Coast, Tropical Storm Irene was reborn Friday and was strengthening to maximum sustained winds of 50 mph, the National Hurricane Center said. Not only that, but her projected tracking had her nearing the Carolinas Sunday. If Irene continues that heading, its heavy rains could be suppressing power generation demand for gas in the Southeast early next week.
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