Next-day natural gas prices managed to make it into the win column in Wednesday's trading despite broad losses from the Great Lakes west and a plunging screen. Gains in the East and Gulf managed to overpower the losers and theNGI National Spot Gas Average gained 1 cent to $2.12.
Futures prices took a dive largely in sympathy with plunging oil prices, and at the close January was down 6.6 cents to $2.165, and February had lost 6.5 cents to $2.220. January crude oil dropped $1.91 to $39.94/bbl., the lowest price since August.
Natural gas and crude oil are not substitutable commodities in the economic sense, but a lower cost energy molecule is a lower cost energy molecule and natural gas traders were willing Wednesday to sell as crude oil tumbled on an unfavorable Department of Energy crude oil storage inventory report and stronger U.S. dollar.
"It moved lower in sympathy," a New York floor trader told NGI. Gas "walked lower" as crude oil prices fell. "I think [crude] traders were looking for a crude build of 600,000 to 700,000 bbl and the number came out 1.2 million. Prior to that, there was a rumor of OPEC cutting production, [but] those rumors were quenched and when the number came out there was even more incentive to sell."
A higher U.S. dollar, no friend to commodities prices, aided and abetted crude oil's misfortunes. The U.S. dollar index (DXY) extended gains to a high of 100.51, its highest since March 2003.
If a weakening energy price environment were not enough, traders are still looking at record supplies of natural gas.
Currently, 4,009 Bcf is in working gas storage, a record, but market bulls may gain some solace from Thursday's Energy Information Administration inventory report, which is expected to show the first withdrawal of an already delayed winter heating season.
This time last year 42 Bcf was withdrawn and the five-year average withdrawal pace is for a 48 Bcf pull. Pira Energy calculated a draw of 46 Bcf and industry consultant Genscape Inc. is looking for a decline of 54 Bcf. A Reuters survey of 26 traders and analysts showed an average 51 Bcf withdrawal with a range of minus 24 Bcf to minus 66 Bcf.
Market bulls continue to battle serious headwinds from weather outlooks that just won't relent from pervasive moderate temperatures. Weather models were little changed overnight Tuesday. In his Wednesday morning report, Commodity Weather Group President Matt Rogers said, "No major changes are noted again...with a steady state forecast picture ahead. The models vary on some detailing, but they generally agree on a powerful, El Nino-driven, warm-dominated pattern over North America, especially through next week. Some detail challenges include a possible East Coast storm system and some cooler wedging for the immediate East Coast cities again as we have seen a little bit of this week.
"No significant cold air connection exists, so the 'cooler' risks are mainly to high temperatures as overnight lows stay on the warmer side again. In the 11-15 day, we continue to track some advance of colder air back into the West again.”
Tim Evans of Citi Futures Perspective said the moderate temperature outlook limits storage withdrawals. He is forecasting a pull of 60 Bcf for this week's report, slightly higher than historical averages, but by Dec. 18 pulls less than the five-year average put the year-on-five-year surplus at a stout 324 Bcf.
"This rising storage surplus confirms the market is becoming increasingly well supplied on a seasonally adjusted basis, which normally represents downward fundamental pressure on prices,” Evans said. “The natural gas market is not entirely without upside potential as we continue to view its current level as a conservative valuation and temperatures will be cooling seasonally over the next two months, but we think the market will continue to struggle without some colder than normal temperatures to help motivate a rally."
Forecasts of heating load confirm the trend warmer. The National Weather Service predicted that for the week ended Dec. 5, New England will see 182 heating degree days (HDD) or 28 less than normal. New York, New Jersey and Pennsylvania are expected to endure 156 HDDs, or 39 below normal, and the greater Midwest from Ohio to Wisconsin is forecast at 170 HDDs, or 52 less than its normal seasonal tally.
Fundamental and technical analysis often diverge, and market technicians versed in Elliott Wave and retracement analysis see conditions in place for a modest rally.
"Last week the market rebounded from the key 0.7862 retracement support [$2.105]," said United ICAP Vice President Walter Zimmerman. "So the congestion zone remains intact. In Elliott Wave terms, this should allow for a further rebound to the $2.370 area, and possibly even $2.560.”
He added, though, that in a longer-term technical timeframe, wave counts suggest that if the market fails to hold $1.902, a test as low as $1.00 is in the cards.
In the cash market, next-day prices at eastern points advanced as traders honed in on wind chill factors expected to send temperatures sharply lower than forecast highs. AccuWeather.com forecast Boston's high Wednesday of 49 would hold Thursday before easing to 47 Friday, 1 degree above normal. New York City's Wednesday high of 57 was anticipated drop to 50 Thursday and recover to only 51 Friday. The normal high is 47.
Deliveries to the Algonquin Citygate gained 77 cents to $3.06, and gas on Iroquois Waddington rose a penny to $2.31. Deliveries on Tennessee Zone 6 200 L added 47 cents to $2.92.
Gas on Tetco M-3 Delivery rose 17 cents to $1.43, and gas bound for New York City on Transco Zone 6 was quoted 15 cents higher at $2.18.
"Gusty winds and lowering humidity will make the air feel chilly on Thursday, despite a return of some sunshine," said AccuWeather meteorologist Alex Sosnowski. "Actual temperatures will peak near 50 F, but [wind chill] temperatures will be mainly in the 30s during the afternoon. Just enough cold air will catch up to the departing rain to bring the first general snowfall from central and northern Maine, New Hampshire and Vermont on north during Thursday.”
The spread between Marcellus and Midwest interconnects narrowed as Marcellus quotes rose and Midwest points eased. Gas on Dominion South added 13 cents to $1.27 and deliveries on Tennessee Zone 4 Marcellus gained 12 cents to to $1.26. Gas on Transco Leidy was quoted 13 cents higher at $1.26.
In the Midwest, gas at the Moultrie County, IL interconnect between REX Zone 3 and NGPL shed a penny to $2.17, and packages at the Putnam County, IN junction between REX and Trunkline were also seen flat at $2.18. Gas at Lebanon, OH fell 2 cents to $2.17.