Physical natural gas prices for Wednesday delivery fell like bowling pins at a PBA tournament in Tuesday's trading. All but a couple of points were solidly in the red, and the NGI Daily Spot Gas Average dropped 8 cents to $2.54.
Near-term weather outlooks called for a abrupt cooling at major eastern, Midwest and Texas points. Futures took it on the chin as well but not to the degree of the physical market. At the close September had fallen 2.4 cents to $2.704 and October was down 2.7 cents to $2.740. September crude oil added 25 cents to $42.62/bbl.
Eastern points took a double-digit drubbing as weather forecasts called for temperatures toward the end of the week to actually fall below normal. Wunderground.com said Chicago's high of 83 on Tuesday would fall to 77 Wednesday and 79 by Thursday. The seasonal high in Chicago is 82. New York City's 88 high Tuesday was projected to slide to 83 Wednesday and 82 by Thursday. The normal late August high in New York is 83. Smoldering Dallas' forecast high of 98 Tuesday was seen dropping to 95 Wednesday and by Thursday was expected to drop to 85, nine degrees below normal.
Gas at the Algonquin Citygate tumbled 63 cents to $2.59, and deliveries to Iroquois Waddington skidded 11 cents to $3.06. Gas on Tennessee Zone 6 200 L fell 66 cents to $2.52.
Delivery points on the Rex Zone 3 east-west expansion also lost ground. Gas delivered to REX from NGPL at Moultrie, IL, shed 2 cents to $2.76.
At Shelby, IN, gas from ANR on REX changed hands 3 cents lower at $2.76, and gas at Lebanon, OH, was quoted 3 cents lower at $2.76.
Industry consultant Genscape reported that flows into REX Zone 3 were down about 200 MMcf/d day-over-day due to a large drop in production receipts at the eastern terminus of the pipe. "Rice Energy nominations to REX at the Gunslinger point in Monroe county fell to zero today after having averaged 182 MMcf/d in the prior seven days."
An industry pipeline veteran speculated the drop was not due to REX but "it's likely the plant the gas is behind has been shut down for some reason."
Major market hubs also experienced declines. Deliveries to the Chicago Citygate skidded a penny to $2.85, and gas bound for New York City on Transco Zone 6 fell 14 cents to $2.72. Gas at the Henry Hub came in a nickel lower at $2.71, and gas on El Paso Permian shed 7 cents to $2.67.
Analysts see continued weakness driven by cooler temperature forecasts. "This market is seeing some further selling as updates to the short term one- to two-week temperature views are looking a bit cooler than yesterday in forcing some upsizing in storage injection ideas later this month and into early September," said Jim Ritterbusch of Ritterbusch and Associates in a Tuesday morning note to clients. "The market also appears to be looking ahead to the rollover into the October futures as prompt month in a little more than two weeks when the temperature impact will be further downsized."
Long hedgers don't see any sense of urgency. "A small supply surplus appears to be discouraging commercial hedging interest capable of sustaining a price advance toward our perceived $3.00 upside price parameter," Ritterbusch said. "The surplus against five-year average levels will likely expand to around 90 Bcf on Thursday if our projected injection is realized. And, given the cooler Midcontinent temperature views, an excess supply of more than 100 Bcf is likely to be seen by early next month.
"However, this doesn't represent a major overhang within historical context and with this in mind, we are still having difficulty constructing a pricing scenario that would carry nearby futures much below the 2.65 region. Extending a view to early November, a record supply would appear likely but only be a slight margin that would keep the market sensitive to an earlier than usual winter cold spell."
Texas gas buyers making purchases for power generation may be able to temper their buying somewhat as forecasts call for hefty wind generation. ERCOT forecasts peak load Tuesday at 66,266 MW, not quite the record reached last Monday of 69,783 MW but healthy power load nonetheless.
WSI Corp. in its Tuesday morning outlook said ERCOT could expect that "a southerly breeze will support elevated wind generation [Tuesday] through tonight. A north-northeast breeze behind a cold front will cause wind gen to step down during Wednesday into most of Thursday. However, a developing southerly flow will likely cause wind gen to ramp back up during Thursday night through Saturday. Wind gen could become strong with output as high as 8-10 GW each night."
Tom Saal, vice president at FC Stone Latin America LLC, in his work with Market Profile expected the market to test Monday's value area at $2.783-2.722 before moving on and testing $2.812-2.793.
The National Hurricane Center in its 5 p.m EDT report said, the fourth tropical storm of the season, TS Danny, was sporting winds of 40 mph as it rambled west at 12 mph. The storm was 1,595 miles east of the Windward Islands.