Physical natural gas for Tuesday delivery surged higher in Monday trading, with nearly all points followed by NGI posting solid double-digit gains and some locations adding as much as 20 cents or more. California points proved to be the day’s top gainers as restrictions and outages had traders utilizing all their tricks to move gas.
The NGI National Spot Gas Average rose 19 cents to $1.82. Futures were not impressed with the higher cash quotes and at the close, June had fallen seven-tenths of a cent to $2.055, and July was off by eight-tenths to $2.199. July crude oil skidded 33 cents to $48.08/bbl.
California was alive with the sound of market disruptions and interruptions. According to industry consultant Genscape Inc., Mojave Pipeline maintenance could back up gas and disrupt SoCal border basis.
Maintenance at "Mojave Pipeline's interconnect with El Paso at Topock could cut over 350 MMcf/d of flows, which may lead to a brief drop in SoCal Border Avg. basis price," Genscape said. "Flows through the Mojave station, located at the California-Arizona border, will be limited to a maximum of 63 MMcf/d on Tuesday…The current average flow for the last 14 days is 432 MMcf/d, which puts 369 MMcf/d of flows at risk.
"This maintenance took place last year on May 28. At that time, flows had averaged 327 MMcf/d and were reduced to a maximum of 220 MMcf/d, a difference of 107 MMcf/d. The anticipated reduction during this year's event is thus three times that of last year's."
In the two weeks ahead of the May 2015 event, “SoCal Border Avg. basis price had averaged $(0.14),” Genscape noted. “Once flows were cut, it dropped to as low as $(0.20). At that time, Southern California demand was relatively high due to warmer temperatures, mitigating a large price drop at the border. However, cooler temperatures are expected in Southern California this week, which could increase the magnitude of a transient border price drop resulting from this maintenance."
If that weren't enough, a West Coast industrial end-user said the OFOs were coming fast and furious in Southern California because of abnormally high storage. OFOs are typically announced a day or more in advance, but the end-user reported they are sometimes issued the same day.
"Having an OFO called on the same day of operation is extremely difficult to deal with,” the end-user told NGI. “If someone says ‘Hey, we’re having an OFO tomorrow, stay within this tolerance,” I can fine tune it, but I’m already pregnant on a day when I’m operating or trying to start up.”
Gas at Malin jumped 18 cents to $1.81, and deliveries to the PG&E Citygate vaulted 21 cents to $1.99. Gas at the SoCal Border Avg. added 24 cents to $1.85, and deliveries priced at the SoCal Citygate zoomed 26 cents to $2.04. Gas on El Paso S. Mainline/N. Baja rose 24 cents to $1.86.
Other market points were higher as well.
Gas at the Algonquin Citygate jumped 36 cents to $1.92, and gas at the Chicago Citygate rose 14 cents to $1.90. Deliveries to the Henry Hub were quoted 14 cents higher at $1.95, and gas on El Paso Permian added 23 cents to $1.77.
The wildfires ravaging Alberta haven't gone away either, which is affecting prices. According to NGI markets analyst Nate Harrison, "AECO prices moved much like the rest of North America,” he said. “They actually set a new 30-day high reaching a price of $1.47, which hadn't been seen since Feb. 24."
The Edmonton Journal on Sunday said the wildfire was “bigger than previously thought.”
Risk managers were awaiting weather developments before implementing any strategies. "Natural gas closed lower across the board,” said DEVO Capital President Mike DeVooght.
After opening lower on the week, the front month broke to the $2.00 level before it found any support.
“Natural gas will most likely be in a holding pattern until we get deeper into the summer cooling season. If we get warmer than normal temperatures early in the season, we could move back into the mid-$2 range. On a trading basis, we will continue to stand aside and await further developments."
Should the opportunity arise, he said producers and physical market longs should sell the June-October strip at $2.70.
Those weather developments may not be far off. Forecasters see the arrival of the season's first major cooling events in eastern population centers.
"The big change over the weekend was in the warmer direction as the first significant event of May hits the Midwest and East this week and then continues into the holiday weekend as well as the first days of June," said Commodity Weather Group President Matt Rogers in a Monday morning outlook.
"While the heat next week is not expected to be as strong as the [balance of the week] performance, there are still warmer risks in there with widespread 80s seen for the southern Midwest to East Coast. As of right now, our peak forecast temperature for Washington, DC, is this Friday at 89 F with moderate humidity (dew points in the 60s).
"It would be the warmest reading so far this year,” he said. “This warm event continues to mostly miss the South, but we are a bit warmer at times for the Tennessee Valley and Southeast. The West experiences mostly cooler changes compared to Friday's outlook, especially Southern California and Southwest. The end of the 11-15 day starts to show some eastern cooling trends, but confidence is very low.”
FCStone Latin America LLC’s Tom Saal, vice president, in a Monday morning note to clients said the "Cal '17 and Cal '18 [strips] are now oversold,” and the “time is now to scale into long hedges. Strategies include fixed-price, long call option, collars and accumulator (below market price).”