On Friday, all traders had to do was look at the load-killing weekend weather forecasts to realize that committing to a three-day deal was less attractive than spot purchases.
Physical natgas prices fell across a broad front, with only a handful of market points followed by <>NGI making it to the positive side of the trading ledger. The NGI National Spot Gas Average skidded 10 cents to $2.31, and eastern points were seen more than 20 cents lower on average. Double-digit declines were posted in the Mid-Atlantic as well as the Marcellus.
Futures at first appeared to have a delayed reaction to Thursday's super-sized inventory build, opening 4 cents lower and trading down as much as 6 cents before scrambling back to a modest setback. At the close, October had lost 2.7 cents to $2.564 and November had shed 4.3 cents to $2.631. November crude oil added 79 cents to $45.70/bbl.
October futures expire Monday, Sept. 28.
Analysts are viewing the market's ability to ignore a seemingly bearish storage report Thursday as a sign that further declines are unlikely. "[W]e still see the ability to easily absorb yesterday's seemingly bearish EIA storage figure as evidence that this bear market may be approaching completion," said Jim Ritterbusch of Ritterbusch and Associates in a Friday morning note to clients. "While it is premature to rule out one more round of fresh lows by a slight margin, we are maintaining a view that upside price risk is exceeding that to the downside by a ratio of at least two to one.
"[W]hile unusually mild temperature expectations during the next two weeks will be sharply limiting accumulation of either HDDs or CDDs, we feel that these weather views have been fully priced. In other words, a couple more triple-digit storage builds would appear to lie ahead but also have likely been discounted. From here, we feel that market surprises are much more apt to be bullish than bearish and that the large speculative presence on the short side will be accentuating upside price response to seemingly minor supportive headlines."
Rather than focusing on a tepid market reaction to Thursday's plump 106 Bcf storage build, others see sub $2.50 fuel-switching and higher coal plant retirement-driven shoulder season demand as sufficient to prevent a pronounced market decline.
"[W]ith just a few weeks left of the official injection season, there appears to be little need for further discounts to manage surplus supplies," said Teri Viswanath, director of natural gas strategy at BNP Paribas. "Despite the re-acceleration in inventory restocking, the price-induced accommodation that has taken place this season leaves sufficient space in storage to manage the excess." Moreover, sub-$2.50 pricing would likely invite a substantial increase in fuel-switching that is unnecessary given the increased replacement demand from retiring coal units.
"Given the concentration of coal unit retirements in June, the replacement demand appears to be accelerating during the second half of this year as gas generators are utilized to replace the aggregate lost plant capacity. Consequently, the higher level of shoulder-season demand and ample room to manage the supply surplus will likely prevent an exaggerated sell-off during the last few weeks of the season."
Mild temperature forecasts at major population centers were more than adequate to keep physical buyers on the bench. AccuWeather.com forecast that Boston's Monday high of 66 degrees would slump to 63 Saturday before reaching 75 Monday, six degrees above normal. New York City's 75 maximum on Friday was seen falling to 73 Saturday before making it to 78 Monday. The normal high in New York in late September is 71. Philadelphia's 78 high Friday was forecast to retreat to 74 Saturday and rise to 80 Monday, six degrees above the seasonal norm.
Gas for delivery over the three-day period on Tetco M-3 Delivery fell 19 cents to $1.12, and gas headed for New York City on Transco Zone 6 plummeted 67 cents to $1.53.
Marcellus points declined, as did Marcellus receipt points farther to the west on Rockies Express Zone 3. Gas on Millennium shed 12 cents to $1.04, and packages on Transco-Leidy Line fell 12 cents to $1.00. Gas on Tennessee Zn 4 Marcellus was quoted at 97 cents, down 10 cents and deliveries to Dominion South came in at $1.04, down 15 cents.
According to the NGI REX Zone 3 Tracker, deliveries to NGPL at Moultrie, IL, skidded 4 cents to $2.50, and gas on Midwest at Edgar, IL, fell 3 cents to $2.52. Deliveries to Panhandle Eastern at Putnam, IN, were quoted 6 cents lower at $2.51, and gas on ANR at Shelby, IN, was seen 5 cents lower at $2.51.
On Friday morning WSI Corp. said, "The six-10 day period forecast is sharply cooler across the eastern half of the nation when compared to previous forecasts with near to slightly below average temps. Portions of the West and Southwest are a bit warmer. PWCDDs are down 1.3 to 19.9. HDDs jumped 7.7 to 19.1 for the CONUS."