Physical natural gas was a mixed affair in Monday trading for Tuesday delivery as multi-dollar gains at eastern points, along with firm Gulf quotes, were able to offset broad weakness in the Midwest, Midcontinent, Rockies and California. When the smoke cleared, theNGI National Spot Gas Average had risen 3 cents to $3.69.
Futures traders saw the market falling into a technical support area, but admitted that the soft close suggested further price erosion. At the close January had fallen 2.3 cents to $3.392, and February was off 1.8 cents to $3.431. January crude oil rose 22 cents to $52.12/bbl.
Hefty residential heating demand has Southern California Gas Co. (SoCalGas) closely monitoring near term weather in West Texas and relying on storage to meet demand.
"With temperatures in Southern California shifting down this weekend, the operators at SoCalGas have been on high alert as the system sendouts jumped up to the 3.3-3.4 BCF range as heating demand picked up," said EnergyGPS in a Monday morning report. "As a result, several notes have been published with the latest last night stating that the grid was on 'curtailment watch' due to concerns of supply shortfalls as the residential/commercial demand was rising and as a result there was significant reliance on storage withdrawals. As we move closer to the holiday weekend, the power loads will start to pull back as Monday/Tuesday of this week look to the peak demand.
"Bottom line is the SoCal system will be closely monitored over the next couple of days as West Texas is a bit chilly which will keep some of the gas at home instead of flowing West on the El Paso pipeline," EnergyGPS said.
Industrial end-users are on high alert as well.
"SoCal gas sends an OFO and says, 'If you don't do it, we are going to penalize you'," said a building materials manufacturer with facilities in the Los Angeles area. "I don't think anyone has a date when that storage field [Aliso Canyon] is going to be good. We just have to deal with it. What is our choice?"
The difficulties at Aliso Canyon, along with higher weather driven demand have put SoCal Citygate prices at an atypical premium to PG&E Citygate.
Gas for delivery to PG&E Citygate rose 3 cents to $3.71, but gas at SoCal Citygate slumped 8 cents to $3.84. Gas priced at Malin fell 4 cents to $3.55, and gas at the SoCal Border Avg. shed a dime to $3.68.
Deliveries to eastern points soared. Gas at the Algonquin Citygate jumped $3.55 to $10.09, and gas on Iroquois, Waddington changed hands 29 cents higher at $5.24. Deliveries to Tenn Zone 6 200L rose $3.64 to $9.80.
Other market points were mostly lower. Gas at the Chicago Citygate fell 39 cents to $3.54, but gas at the Henry Hub rose 6 cents to $3.52. Packages on El Paso Permian were quoted 13 cents lower at $3.48.
Futures traders are not optimistic.
Monday's "decline falls right into that support area at $3.29 to $3.33, but the fact that we have a lower close on the day makes me feel the market is a little heavy," said a New York floor trader.
"I think we'll drift into the $3.26 to $3.29 area" on Tuesday.
Traders struggled to find longer term signs of weather patterns capable of reigniting the earlier price advance.
Sunday overnight weather model runs did nothing to quell the trend of moderating temperatures in the more distant time frames.
Monday's 11-15 day forecast period was colder in the Plains and warmer in the East "when compared to Friday's forecast," said WSI Corp. in its Monday morning report. Continental U.S. gas-weighted heating degree days were down -3.8 to 137.2 for the period and "forecast confidence sits near average levels as models show fair agreement, though model spread is quite large, likely due to timing issues."
Risks to the forecast include cold "placed across the Northeast on days 13-15, pending a transient cold air mass passage. Temperatures could run warmer than forecast over the South-Southeast under a -PNA [Pacific North American] driven state," WSI said.
In his work with Market Profile, Tom Saal, vice president at FCStone Latin America LLC in Miami, said to look for the market to test last week's value area at $3.566 to $3.472. The market "could test" $3.710 to $3.618 or $3.154 to $3.052, but he was "not sure what order."
Saal is an advocate of options to hedge winter price risk and volatility. It's a "no brainer" to go long options when the premium costs are less than the daily, weekly, monthly price fluctuations, he said.
The ongoing market tumble clearly has the bulls with their backs against the wall, and fundamentalists see further weakness ahead. Jim Ritterbusch of Ritterbusch and Associates said the weather forecasts are "suggesting above-normal patterns across the eastern half of the U.S. that will sharply reduce withdrawals from storage" beyond next week's Energy Information Administration storage report. Last Thursday's report "offered a supply draw that was about 20 Bcf larger than average industry expectations.
"The market's sharp selloff in the face of such a bullish report underscores a heavy pricing environment that has been accompanied by significant chart damage," he said last Friday. "From here, we see additional weakening that will carry January futures to about the $3.25 level, especially if weekend temperature updates suggest milder trends into the New Year."