Modest weakness at eastern points was not enough Wednesday to thwart an otherwise strong physical natural gas market. Next-day gas was firm at all locations outside the Northeast, with most points adding anywhere from a nickel to a dime. The NGI National Spot Gas Average rose 4 cents to $2.70 with gains in California, the Rockies, and the Gulf offsetting Marcellus weakness.
Futures mostly consolidated ahead of the Energy Information Administration’s storage report, with August easing 2.7 cents to $2.863 and September off by 3.0 cents to $2.858. August crude oil jumped $2.03 to $49.88/bbl.
Tim Evans of Citi Futures Perspective said the day’s decline resulted from "light profit taking off Tuesday's surge to 13-month highs as the temperature forecast looks slightly cooler than a day ago.
The natural gas market is also recovering from Tuesday's July contract expiration and preparing for Thursday's storage report, with consensus expectations running in the neighborhood of 46-48 Bcf in net injections for the week ended June 24. A refill on that order would look like a constructive step down from the 62 Bcf build a week ago and supportive compared to the 78-Bcf five-year average as well.
Traders are also optimistic the market will surge past $3.
"The base the market has built has held and traders were able to lift it higher,” a New York floor trader told NGI. “I think they will pop it over $3.”
Conditions may be in place for a leap above $3 as the market will be focused Thursday on storage, which is expected to come in well below historical averages. Last year 71 Bcf was injected and the five-year pace stands at 78 Bcf.
Evans calculated a build of 49 Bcf, and United ICAP is looking for an increase of 41 Bcf. Analysts at IAF Advisors expect an injection of 37 Bcf. A Reuters poll of 21 traders and analysts revealed an average 46 Bcf build with a range of 37 Bcf to 54 Bcf.
Production lost from the shut in of the Enterprise Product Partners LP’s Pascagoula, MS, 400 MMcf/d gas processing plant isn't expected to return anytime soon. The plant sits astride the two major pipelines bringing gas from the Gulf of Mexico (see Daily GPI, June 29;June 28).
"The loss of Destin and Discovery [pipeline] production will combine to leave the grid 0.846 Bcf shorter on the day compared to the 27th and 0.997 Bcf shorter compared to the 26th," said EnergyGPS in a morning note to clients.
"The return date for both pipelines remains unknown. Destin has indicated they will attempt to moved offshore production onto the Viosca Knoll Gathering System” to circumvent the Pascagoula processing plant.
“The magnitude and uncertainty surrounding the decreased Gulf production drove the markets into a frenzy [Tuesday] with the July contract trading up 20 cents before expiration. It is unlikely that we will see much if any downward pressure on the natural gas price until this 1 Bcf of Gulf production returns."
Weather models Tuesday overnight gave forecasters a little less confidence, but the ongoing pattern of above-normal temperatures remains intact.
"Forecast confidence edges downward slightly [Wednesday] due to a combination of more divergent model guidance and lack of consistency” from Tuesday" said Commodity Weather Group (CWG) in its morning report to clients. "Some bigger cooler changes in the West are noted from the Southwest to the Northwest, while the deep South edges hotter for all periods including another tick hotter for Texas (peaking at 102 F next Tuesday).
“The models are generally pulling back from stronger heat in the East in the 11-15 day, too, with all three sets of guidance showing near normal on the East Coast, while the Midwest to South ranges from seasonal to hotter than normal.
"In fact, the European ensemble looks different” than Tuesday, “with stronger heat ridging back CWG President Matt Rogers.
In physical market trading, Midwest next-day prices rose as real-time power prices proved supportive. Intercontinental Exchange reported that on-peak real-time next-day power at the Indiana Hub rose $2.29 to $29.68/MWh.
Deliveries to Alliance were quoted 3 cents higher at $2.82, and packages at the Chicago Citygate added 6 cents to $2.86. Gas on Consumers changed hands 8 cents higher at $2.88, and deliveries to Michigan Consolidated came in 6 cents higher at $2.86.
Marcellus points eased. Gas on Dominion South for Thursday delivery fell a nickel to $1.79, and gas on Tennessee Zn 4 Marcellus shed 9 cents to $1.65. Deliveries to Transco-Leidy Line dropped 3 cents to $1.75.