Physical natural gas for Tuesday delivery fell in Monday's trading as a one-two combination of a soft screen and a weak power environment put pressure on prices. The NGI National Spot Gas Average fell 3 cents to $2.62.
Weakness in the Gulf, Midcontinent, Rockies and California outweighed isolated strong spots in the Midwest and East. The weather-storage-supply matrix is under the microscope and near- and medium-term weather forecasts are under intense scrutiny. September futures retreated and at the close were down 7.3 cents to $2.728 and October was lower by 7.0 cents to $2.767. September crude oil fell 63 cents to $41.87/bbl.
Analysts see the market focusing on shoulder-season demand, or the lack thereof. "After struggling to maintain marginal gains last week, U.S. natural gas prices are now headed decisively lower this week as traders come to terms with reduced shoulder-season demand," said Teri Viswanath, director of natural gas strategy at BNP Paribas.
Natgasweather.com said the noon data shows near-term warmth, followed by a cool down, the re-imposition of high pressure and related heat, followed by another cool down. "The latest mid-day weather data continues to advertise very warm temperatures over the southern and eastern US today and tomorrow, but easing after as an unseasonably strong weather system spins up over the central US and spill cooler temperatures south and east," it said in a noon report to clients.
"After this central US weather system is finally forced back into Canada through the Great Lakes Thursday, high pressure will regain ground over the southern and eastern US Friday through the weekend, resulting in very warm to hot conditions returning to much of the US. However, another weather system is expected to track across the northern Plains late in the weekend, which will again graze the upper Midwest with cooling early next week."
"With the hot weather in August beginning to trend milder, traders are becoming increasingly nervous about surplus supplies," Viswanath said. "To be sure, daily cooling demand begins to fade by late August or early September, enabling the weekly build in inventories to accelerate.
"We note that daily electric power demand has declined by an average 5.4 Bcf/d from August to September over the past five years, triggering heavier restocking in the back-half of the injection season. [D]espite the elevated cooling demand so far this month, shoulder season weakness is inevitable. With the market remaining acutely focused on how the current supply surplus will ultimately resolve itself, we expect that prices will continue to deteriorate until finding a backstop with the start of winter heating demand. And with the latest data update from the National Weather Service showing an intensified El Nino weather pattern, the early weather forecast guidance of a mild winter ahead offers little encouragement for buyers."
Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm, in a weekend note to clients said, "The tight two-sided trade over the past couple of months can be attributed to short-covering and the uncertainty of what the impact of falling gas rig activity will have on future natural gas production. Demand is moderate and supplies continue to be adequate. If the gas market does start to rally, we could see a quick rebound to the mid to high $3 level."
At present, DeVooght recommends that trading accounts, end-users and producers stand aside the market.
In physical trading northeast points managed modest gains in spite of a soft next-day power market. Intercontinental Exchange reported that on-peak power Tuesday at the ISO New England's Massachusetts Hub fell $8.41 to $52.09/MWh and next day peak power at the PJM West Hub fell 16.04 to $46.07/MWh.
Tuesday gas at the Algonquin Citygate rose 14 cents to $3.22 and deliveries to Iroquois, Waddington gained 6 cents to $3.17. Gas on Tenn Zone 6 200L changed hands 16 cents higher at $3.18.
Mid-Atlantic points were mixed. Gas on Texas Eastern M-3, Delivery added a nickel to $1.65 and gas bound for New York City on Transco Zone 6 shed 7 cents to $2.86.
Marcellus points were mostly weaker and flirted with lows seen in July. Deliveries to Dominion South added 10 cents to $1.56, but gas on Transco-Leidy Line shed 24 cents to 76 cents. Gas on Tennessee Zn 4 Marcellus was down 13 cents to 82 cents.
The National Hurricane Center (NHC) is following a tropical disturbance in the far eastern Atlantic. In its 2 p.m. EDT report NHC said, "Shower and thunderstorm activity associated with an area of low pressure located several hundred miles southwest of the Cape Verde Islands continues to show signs of organization. Environmental conditions appear conducive for development over the next several days, and a tropical depression will likely form by the middle of the week while the system moves westward or west-northwestward near 15 mph."
NHC estimated a 50% chance of tropical storm formation in the succeeding 48 hours, and a 70% chance in the succeeding five days.