Very little black ink was going around natural gas trading desks Thursday, as both next day gas and futures took it on the chin, with soft power pricing and weather forecasts in major eastern markets expecting temperatures to surge well above normal on Friday.
The NGI National Spot Gas Average shed 12 cents to $2.17, but most market points outside the Northeast were down about a nickel. Average Northeast losses came in just under 40 cents. The Energy Information Administration (EIA) reported a withdrawal from natural gas inventories of 168 Bcf, about 10 Bcf less than expectations. Futures immediately headed south.
At the close, February had retreated 13.0 cents to $2.139, and March was off 11.0 cents to $2.180. February crude oil managed a gain of 72 cents to $31.20/bbl.
Most physical traders try to get their deals done ahead of the 10:30 a.m. EST release of inventory data by the EIA, which left the day's primary market driver -- the futures response -- to the storage numbers.
Market bears lost no time seizing on an unsupportive inventory figure. February dropped to a low of $2.166 following the release of the storage data, and by 10:45 a.m. February was trading at $2.180, down 8.9 cents from Wednesday's settlement.
Prior to the release of the data, analysts' estimates were in the 177 Bcf range. ICAP Energy was looking for a pull of 182 Bcf, and a Reuters survey of 21 traders and analysts showed a range from -158 Bcf to -192 Bcf with an average -178 Bcf.
"We were looking for a number around 178 Bcf, and it came in at 168," said a New York floor trader. "We were trading around $2.225 when the number came out and it came off about 6 cents off the number. I don't think you will see anything [support] until $2.10, but greater support will be at $2."
"The 168 Bcf in net withdrawals was less than the consensus expectation, a minor bearish surprise that suggests at least a modest weakening of the background supply/demand balance," said Citi Futures Perspective’s Tim Evans. "This will increase market confidence that it can ignore the prospect of higher withdrawals expected for this week and next, jumping to the conclusion that winter may as well be over."
Using the five-region format, inventories now stand at 3,475 Bcf and are 587 Bcf greater than last year and 474 Bcf more than the five-year average. In the East Region, 55 Bcf was pulled, and the Midwest Region saw inventories fall by 41 Bcf. Stocks in the Mountain Region were down by 8 Bcf, and the Pacific region was lower by 18 Bcf. The South Central Region, similar to the former Producing Region, dropped 46 Bcf.
Physical traders had their own issues to deal with in the form of mild weather forecasts and next-day power prices that made incremental purchases of gas for power generation less attractive.
Forecaster Wunderground.com predicted the high Thursday in New York City of 37 would surge to 50 Friday before easing slightly to 48 Saturday, a stout 10 degrees above normal. In Chicago Thursday's high to 43 was expected to fall to 40 Friday before getting hit with a cold influx which was seen dropping temperatures to 25 Saturday. The normal high in the Windy City this time of year is 31.
Gas for next-day delivery on Tetco M-3 shed 38 cents to $1.61, and gas bound for New York City on Transco Zone 6 skidded 66 cents to $2.17.
Midwest points were somewhat more resilient. Deliveries to Alliance were off 4 cents to $2.29, and gas at the Chicago Citygate gave up 3 cents also to $2.29. Gas on Michigan Consolidated fell 4 cents to $2.30 and packages on Consumers were off 6 cents to $2.28.
Intercontinental Exchange reported that Friday on-peak power at the PJM West terminal fell $6.06 to $24.19/MWh, and Friday power at the ISO New England's Massachusetts Hub fell $9.07 to $33.64/MWh.
New England prices also cascaded lower. Gas at the Algonquin Citygate shed 94 cents to $3.46, and deliveries to Iroquois, Waddington were seen 42 cents lower at $2.45. Gas on Tenn Zone 6 200L fell $1.13 to $3.25.
Forecasters said the Wednesday overnight model runs of the pivotal late-January weather window moderated. Thursday’s 11-15 day period forecast “depicts near to above average conditions across the eastern two thirds and is generally warmer” than Wednesday’s forecast," said WSI Corp.
Continental U.S. gas-weighted heating degree days -- GWHDD -- “are down 4.7 and are now forecast to be 136.1 for the period. Forecast confidence is near average...as medium range models are in reasonably good agreement with a warmer more El Nino like pattern. There are technical and timing differences with potential storm systems that can influence anomalies.
"A more El Nino and/or +PNA [Pacific North American] driven pattern offers a risk to the cooler side across the southern U.S. The West Coast and Northern Rockies have a slight upside risk."
For followers of Market Profile, the Monday-Tuesday trading rule for weekly price targets was still in play.
Tom Saal, vice president at FC Stone Latin America LLC, said to look for the market to test Wednesday's value area at $2.288 to $2.258 before moving on and testing a second value area at $2.405 to $2.387. The Monday-Tuesday rule requires traders to follow a market breakout of the initial balance, $2.423 to $2.255, either higher or lower. Wednesday traded as low as $2.256.
Saal placed trading targets higher at $2.507 and trading targets lower at $2.171. The market fit profile trading to a tee. Prices broke below the initial balance of $2.555 and reached the objective of $2.171.