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Natural Gas Cash, Futures Continue Retreat, Despite Heatwave

Natural gas market bulls were down and out Friday as trading in the cash market as well as in the futures arena continued Thursday's bearish activity, further eating into the gains made from the week's first three days of positive action.

Physical natural gas points declined across the board, with most regions seeing drops from a couple of pennies to a dime. However, the Northeast and California showed the biggest drops heading into the weekend, with double-digit declines abound, despite mixed weather forecasts on whether the current heatwave will abate next week.

NGI's National Spot Gas Average dropped 15 cents to $2.49, while July natural gas futures were fairly quiet once again on Friday, trading within a narrow range before closing the day's regular session at $2.750, down 7.5 cents from Thursday's finish but 16 cents higher than the previous Friday's close at $2.590.

In California, gas traded Friday for weekend and Monday delivery plunged lower, ignoring a stubborn heatwave and perhaps correcting a round of over-bullishness earlier in the week. PG&E Citygate sank 12 cents to average $3.09. while SoCal Border came off 13 cents to $2.70.

While California took a hard fall, some northeastern points virtually fell off a cliff on Friday, as forecasters predicted the region's heatwave would break, giving way to more seasonal temperatures. Algonquin Citygate plunged below $2 Friday to average $1.55, down 67 cents from Thursday's trade. Dominion North and South came off 17 cents and 24 cents, respectively, to average $1.42 and $1.43.

Even northeastern points tied to the mighty Marcellus Shale, which have a history of marching to the beat of their own price direction drum, fell in line to finish out the week. Transco-Leidy Line declined 24 cents to average $1.41, and Tennessee Zone 4 Marcellus dropped 16 cents to average 71 cents, which is approaching unchartered territory.

The lowest average price Tennessee Zone 4 Marcellus has on record was 36 cents on Sept. 17, 2013.

Breaking down the implications of Thursday's 111 Bcf storage injection report for the week ending June 5, analysts at Tudor, Pickering, Holt & Co. (TPH) said the build was "a touch better" than the 113 Bcf expectations, and "much better" than the prior week’s 132 Bcf on "essentially the same weather, which highlights how volatile shoulder season power-gen demand can be."

TPH said 111 Bcf is still a record injection for the week but on a weather adjusted basis indicates a reasonable 2 Bcf/d implied oversupply. "Current week’s weather and eight- to 14-day forecast are both looking warmer than normal so expecting a nice near-term power-gen demand uptick and sub-100 Bcf injections over the next couple of weeks," TPH said, adding that the market is heading into summer with storage levels 2%, or 44 Bcf above normal.

Citi Futures' Tim Evans said it appears that the natural gas futures market is consolidating in negative territory on end-of-the-week book squaring, with a modestly cooler temperature outlook than a day ago subtracting some air-conditioning demand from the fundamental equation. "We continue to view the 111 Bcf net injection into DOE natural gas storage for the week ended June 5 as having been constructive, confirming an improvement on the prior week’s 132 Bcf refill," Evans said. It was still more than the 89 Bcf five-year average however, so still moderately bearish on a seasonally adjusted basis. 

Days after the Energy Information Administration announced that it was raising its 2015 natural gas price forecast for the first time in months, a move that surprised some observers (see Daily GPIJune 9), Fitch Ratings said it was revising its assumptions lower yet again. Due to "increasing efficiencies and price pressure related to the U.S. shale boom," Fitch's price assumptions for the long-term Henry Hub natural gas price were revised down to $3.75/Mcf. The move reflects "increasingly efficient U.S. shale production, and tepid demand relative to the boost in supply," the ratings agency said.

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