Physical gas for Wednesday delivery weakened in Tuesday’s trading as robust pricing in the Northeast and modest gains in Appalachia were not able to offset weakness in Texas, the Gulf Coast, Midcontinent and Midwest points.
The NGI National Spot Gas Average fell 5 cents to $2.57, and only a handful of points managed to break even or crawl into the plus column. Futures struggled. September retreated 3.8 cents to $2.733 and October lost 3.5 cents to $2.783. September crude oil continued on Monday's flight path and dropped 55 cents to $39.51/bbl.
Short-term players see the current demise of crude and products as something natural gas markets will have to contend with. Although the physical substitutability of crude oil for natural gas is next to zero, an energy molecule is an energy molecule. "Crude oil settled under $40, and that is huge for the crude and products," a New York floor trader told NGI. "Successive settlements under $40 could keep natgas under $2.75."
Longer term, traders don't see a lot of opportunity on either side of the market. "We continue to have difficulty developing a short-term trading model suggestive of a price swing of much more than 20 cents in either direction as this market still appears trapped in a comparatively narrow range," said Jim Ritterbusch of Ritterbusch and Associates in a Tuesday morning note to clients.
"From a broad perspective, we continue to see an offset between a high absolute storage level of about 3.3 Tcf and an ongoing contraction in the supply surplus that will be furthered by Thursday's EIA release. We will repeat that the large supply surplus of about 525 Bcf is a static factor that has been discounted. However, the dynamic influence of surplus contraction is a moving target that has yet to be fully priced.
"The bulls and the bears appear to have an equivalent argument in supporting their case off of either one of these factors. On a more micro level, some apparent stalling in production decline is offering the bears some ammunition while elevated CDDs are supporting a bullish case as electric generation demand remains relatively strong amidst stout export activity."
Production "decline" has been slow to materialize. Observers note decline in all U.S. basins except the Northeast, and that decline may be on the cusp of overtaking the Northeast. Industry consultant Genscape said new production in West Virginia looks to keep the wheels of eastern production growth rolling.
"Spring Rock's latest production forecast -- released Friday -- has scaled back East growth expectations only slightly. Nonetheless, Northeast production is continued to keep its upward trajectory through the balance of the year and through 2017. As evidence, on Monday, Dominion Transmission (DTI) added 10 new production meters to their operationally available capacity report. Collectively, these meters have 25.1 MMcf/d in operational capacity.
"Production on DTI's system this summer has fallen short of 2015 by 395 MMcf/d. Last Friday saw a record low of 1,418. Since then, however, Genscape has seen production on DTI rise to 1,769 MMcf/d on Monday. With Spring Rock's latest forecast release, the East stands as the only region in the Lower 48 where summer- and/or winter-over-winter growth is expected. All other regions are in decline and, collectively, at a rate that is finally overwhelming the East growth.
In earlier times the arrival of tropical storms might have a market impact, but Tropical Storm Earl hit the market with a big yawn. At 12 p.m. EDT Earl was reported 215 miles south-southeast of Grand Cayman and was moving to the west at 22 mph. Maximum sustained winds were 45 mph and the National Hurricane Center expected the storm to make landfall at Honduras or Belize.
Continued warmth over major population centers may have a larger impact. In a noon update Natgasweather.com said, "[W]e continue to see a very warm to hot pattern dominating the U.S. through mid-August, although still with the expectation that there will be decent swings in nat gas demand every few days from slightly above normal to much stronger than normal.
"Over the continental U.S., it remains slightly cool over the northeastern U.S. with scattered showers and thunderstorms, although hot high pressure over the western and southern U.S. continues expanding to gain ground over the central U.S. and Great Lakes with highs of upper 80s to 100s becoming widespread, including into Chicago.
"Hot temperatures will combine with high humidities to drive very strong regional demand the next several days over the east-central and southern US as the Heat Index again exceeds 100-105F+, focused over eastern Texas and up the Mississippi River Valley. It's important to note the Mid-Atlantic and Northeast will be slowest to warm this week, but should still reach the upper 80s to lower 90s Thursday through Saturday, including into major cities such as New York City and Philadelphia."
In physical market trading next-day gas at New England points managed to scoot higher as temperatures were forecast to migrate upwards. AccuWeather.com forecast that Boston's Tuesday high of 75 would rise to 80 by Wednesday and reach 85 on Thursday, 4 degrees above normal. Hanover, NH's Tuesday max of 82 was forecast at 86 Wednesday and Thursday, 3 degrees above normal.
Gas at the Algonquin Citygate rose 8 cents to $2.81 and parcels on Tenn Zone 6 200L gained 15 cents to $2.85.
Mid Atlantic prices, however, weakened. Next-day gas on Texas Eastern M-3, Delivery shed 3 cents to $1.43, and gas bound for New York City changed hands 7 cents lower at $1.96.
Major Hubs fell a nickel or more. Gas at the Chicago Citygate gave up 5 cents to $2.76, and deliveries to the Henry Hub skidded 8 cents to $2.79. Next-day packages at Kern Receipt were quoted 10 cents lower at $2.63, and gas at the SoCal Citygate fell 6 cents to $2.86.