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Weekly NatGas Bears On The Prowl; All Points Lower

None of the market points followed by NGI were able to escape the cleaver of cascading quotes for the week ended Feb. 5. Losses ranged from as little as a penny to over $1 and the NGI Weekly Spot Gas Average fell 14 cents to $1.97.

The market point showing the least bruising was Kingsgate with a loss of just a penny to $1.85 and the week's greatest loser was Algonquin Citygate with a drop of $1.09 to $2.41, followed closely by Tennessee Zone 6 200 L with a decline of $1.05 to $2.35. Regionally, the Northeast was sacked for the biggest loss with a drop of 30 cents to $1.75, and the Rocky Mountains suffered the least with a decline of 4 cents to $1.98.

California saw average quotes fall 12 cents to $2.16 and South Louisiana, East Texas, and South Texas all shed 11 cents to $2.03, $2.01, and $2.01, respectively.

The Midwest was lower by 10 cents to $2.08 and the Midcontinent gave up 8 cents to $2.00.

On a somewhat ominous note March futures fell much harder than the national average losing 23.5 cents for the week to $2.063.

Few cash traders wished to endure the vagaries associated with Thursday's often market moving Energy Information Administration (EIA) storage report. When EIA reported a 152 Bcf draw in its 10:30 a.m. EST release, futures prices at first moved nominally lower, but at the close bears were in full control, and March fell 6.6 cents to $1.972 and April shed 6.1 cents to $2.062.

Going into the report, the thinking was that the number would lodge somewhere in the upper 150 Bcf area. Before the numbers came out IAF Advisors was looking for a pull of 150 Bcf, and a Reuters survey of 23 traders and analysts showed a range from -116 to -202 Bcf with an average -158 Bcf. Industry consultant Bentek Energy utilizing its flow model anticipated a withdrawal of 144 Bcf. Last year, 112 Bcf was withdrawn and the five-year average is for a 165 Bcf pull.

March futures fell to a low of $1.984 following release of the storage data, and by 10:45 a.m. March was trading at $2.015, down 2.3 cents from Wednesday's settlement.

Analysts suggested that the eastern snow of the prior week may have forced a one-time "low" withdrawal. "[I]t does look to us as though a drop in industrial demand off the major Jan. 22-23 East Coast snowstorm may have helped limit withdrawals for last week," said Tim Evans of Citi Futures Perspective. "If so, that's a one-off change that may not indicate a weakening of the underlying supply-demand balance.  However, we'd still say this is a bearish result, further reducing the chances that storage levels tighten this winter."

With the day's settlement at $1.972, the stage may be set for further declines. "We have to see if this trades under $2 and settles under $2 for a couple of days. If we settle above $2, maybe we get a little bounce back," a New York floor trader told NGI.

Inventories now stand at 2,934 Bcf and are 490 Bcf greater than last year and 445 Bcf more than the five-year average. In the East Region 54 Bcf was pulled, and the Midwest Region saw inventories fall by 44 Bcf. Stocks in the Mountain Region were down by 5 Bcf, and the Pacific Region was lower by 2 Bcf. The South Central Region shed 47 Bcf.

In Friday's trading, weekend and Monday packages of physical gas managed modest gains as rising quotes in the Midwest, Midcontinent, Gulf Coast and Northeast led soft quotes in the Rockies, West Texas and California higher.

The NGI National Spot Gas Average rose 2 cents to $1.99, and the Northeast posted gains of nearly a dime. Futures responded to near-term weather forecasts, and at the close March had added 9.1 cents to $2.063 and April was higher by 7.5 cents to $2.137.

The EIA reported December dry gas production at 74.3 Bcf/d, down more than 1 Bcf/d from September levels. A falling rig count and shut-in wells were largely identified as the culprit, and market bulls point to falling production as one component necessary to rebalance the market. How much more of a decline will be necessary to stem the trend of lower prices and rebalance the market? Analysts at EnergyGPS, a Portland OR-based natural gas and power consulting firm, ventured that "if you dropped 6 Bcf/d and with 200 days of injection you would lose 1.2 Tcf, and under a pretty dire case you could easily rebalance the market that way.

"The bigger question is if there are enough uncompleted wells to keep production from dropping no matter what happens to price. It's hard to know, and it depends if pipeline capacity opens up in Marcellus regions and Dominion South and Transco-Leidy Line are getting extremely low prices. How much gas is there versus how much legacy production, which may not be able to compete at $1.80 or whatever they are receiving?"

Weekend and Monday gas prices at Marcellus points continued to struggle. Gas on Dominion South fell 11 cents to $1.31, and deliveries to Tennessee Zn 4 Marcellus shed 9 cents to $1.14. Gas on Transco-Leidy Line fell 7 cents to $1.20.

Other eastern points enjoyed a firm power market. Intercontinental Exchange reported Monday power at ISO New England's Massachusetts Hub rose $9.81 to $38.50/MWh and peak power at the PJM West terminal rose $2.39 to $31.47/MWh. At the Indiana Hub, Monday peak power added $1.20 to $26.00/MWh.

Deliveries to the Algonquin Citygate rose by 19 cents to $3.11, and parcels on Iroquois, Waddington added 13 cents to $2.31. Gas on Tenn Zone 6 200L rose 17 cents to $2.92.

Gas on Texas Eastern M-3, Delivery was flat at $1.56, and supply bound for New York City on Transco Zone 6 rose 8 cents to $2.15.

Weather models Friday showed increasing cold in the eight- to 15-day period, according to forecaster Natgasweather.com. "Weather systems out of Canada will sweep across the central and eastern U.S. with below-normal temperatures and areas of snowfall. Details of how much polar air arrives will need refining due to a very strong temperatures gradient draped across the northern U.S. The West will be mostly dry with milder temperatures. The pattern after Feb. 15th is fairly uncertain with plenty of adjustments to come.

"The weather models are still battling who will win out late next week and beyond between a strong Pacific jet stream approaching the West Coast versus additional polar blasts over Canada attempting to push across the border. The latest data shows a mix of wildly varying solutions, but with the cold camp gaining some momentum back after milder mid-day trends. This makes what happens with today's midday data important to see if colder trends can actually stick after so much flip-flopping in the data the past several days," the firm said.

Traders aren't necessarily buying into any significant weather impact at this late stage of the heating cycle. "The strong overnight rebound appears more related to a technically oversold condition rather than any major adjustments in the short-term temperature outlooks," said Jim Ritterbusch of Ritterbusch and Associates in a Friday morning note to clients. "While below-normal patterns across the eastern half of the U.S. still appear intact, we will reiterate that deviations from normal don't appear pronounced and that response to significant deviations from normal going forward will be cushioned by this advanced stage of the HDD cycle.

"And while the market's ability to discard yesterday's seemingly bearish storage figure that was far removed from our expectation by some 17 Bcf might be signaling the beginning of a sizable price recovery, we will note that weather events, such as the recent major east coast snowstorm, are always difficult to gauge as far as [power generation] impact is concerned. Nonetheless, we are still allowing for some further price recovery into the $2.15-2.20 zone in referencing nearby futures where we will look to re-establish a short holding."

On the economic front, the Labor Department reported an increase in non-farm payrolls of 151,000 for January, less than the 180,000 expected by economists. The unemployment rate dropped to 4.9%, the lowest rate in eight years.

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