Physical natural gas for Tuesday delivery was relatively unfazed Monday as gains in the Northeast were largely dominated by pricing throughout the country a few pennies either side of unchanged. The NGI National Spot Gas Average rose 3 cents to $2.85.
Near-term temperatures at eastern points were forecast somewhat below average, but in the Midwest, temperatures were seen greater than average. The futures arena was a different story, with the March contract sailing through what was once thought to be firm technical support at $3 and at the very least opening up a window to more volatility.
At the close, March had dropped 9.0 cents to $2.944 after failing to trade any higher than $2.994. April slumped 8.5 cents to $3.032, and March crude oil skidded 93 cents to $52.93/bbl.
Last week futures bulls had been encouraged by the market's ability to hold $3 in the face of unsupportive weather forecasts, but that changed Monday morning when weather models over the weekend showed another level of moderation. Not only did the March contract fall convincingly below $3, but it also formed a gap on the charts inasmuch as Monday's high of $2.994 was lower than Friday's low of $3.005.
Some aren't so convinced the fall is that significant.
"What we saw Monday was a trend day, which is a type of exhaustion pattern where the market is obviously going south and after the initial balance each half hour failed to make a high greater than the previous half-hour,” said Tom Saal, vice president at FCStone Latin America in Miami and an adherent of Market Profile. “You are making sequential lower highs throughout the day. People are getting out of long positions, and we should see a rally” Tuesday.
"This down move should be coming to an end. I don't disagree with breaching $3. The whole-dollar numbers have always been significant in natural gas, and it could foretell other things to come. We have several untested value areas above us and several below so we should continue to see ongoing volatility” he said.
"The thing that concerns me the most is the set up by the Commitments Of Traders Report that shows the funds are now very long. They could liquidate and push the market down even more."
Monday's decline got started overnight as weather models over the weekend turned sharply warmer near-term and forecast heating requirements were slashed. Overnight oil markets also fell.
According to Commodity Weather Group President Matt Rogers, "massive warmer changes over the weekend were compounded” Sunday night when the European guidance lost about 10 more national heating degree days (HDD).
“Even the warmest guidance saw double-digit national HDD losses compared to Friday as a massive warm surge in the pattern dominates the six-10 day range with the Midwest bearing the brunt of the well below normal heating demand expectations. The East Coast sees warmer adjustments too, but not nearly as strong as the Midwest.
“Some very slight colder change offsets are noted for the Midwest to East Coast in the one-five day range and the West is colder in the 11-15 day with some of that expanding to the Midcontinent late," Rogers said.
Harrison, NY-based Bespoke Weather Services in a Monday morning report expects somewhat less warmth, but not much.
"We do see a bit of bullish risk on model guidance in the 11-15 day timeframe, but right now it is only shown on international model guidance by days 13-15 and we have seen that bullish risk frequently disappear as it moves closer to verification. Additionally, some colder trends near the end of February will not increase demand quite as much as they would near the end of January..."
It's all about the weather, say risk managers.
"The gas market is going to continue to be sensitive to weather over the next two months," said DEVO Capital Management President Mike DeVooght. "If we continue to see warmer than normal temperatures, we will see gas trade below $3.00 in the near future. If temperature forecasts turn colder than normal, we could easily see gas test the $3.40-3.50 level.
"Looking forward into mid 2017-early 2018, we feel the gas market is going to have a difficult time holding above the mid $3 range as take away capacity out of the Marcellus and Utica expands.”
In physical activity, traders had to balance differing temperature outlooks. Wunderground.com forecast that Boston's Monday high of 32 degrees would inch up to 33 Tuesday before reaching 40 on Wednesday, 2 degrees above normal. Chicago was expected to see its high Monday of 45 rise to 48 Tuesday before falling to 34 Wednesday, 1 degree below normal.
Gas for delivery at eastern points rose, but deliveries to most major market centers slipped. Gas at the Algonquin Citygate added 71 cents to $4.85, and deliveries to Iroquois Waddington eased 2 cents to $3.45. Gas on Tenn Zone 6 200L rose 41 cents to $4.72.
At the Chicago Citygate, however, Tuesday gas was unchanged at $2.86, and deliveries to the Henry Hub changed hands at $2.91, down 2 cents. Gas at Northern Natural Demarcation was also flat at $2.79, and gas at Opal rose a penny to $2.70. Gas priced at the SoCal Citygate came in 18 cents higher at $3.10.
Parcels on Texas Eastern M-3, Delivery added 13 cents to $2.79, and gas bound for New York City on Transco Zone 6 rose 5 cents to $2.90.