Physical natural gas for Tuesday delivery responded to a variety to temperature patterns across the United States in Monday's trading. Outside New England, market points on average posted gains of a nickel to a dime or more, but New England's temperatures Tuesday were expected to be warmer leading to price weakness.
The NGI National Spot Gas Average gained 8 cents to $2.81, but major trading centers posted double-digit gains. Futures were solidly in the black ,and at the close April had added 9.3 cents to $3.041 and May was higher by 9.4 cents to $3.098. April crude oil shed 56 cents to $48.22/bbl.
Somewhat disparate temperature patterns kept physical traders busy. AccuWeather.com forecast that Boston's high of 49 degrees Monday would rise to 51 by Tuesday before plunging to 32 on Wednesday. The seasonal high in Boston is 47.
Gas on Texas Eastern M-3, Delivery was flat at $2.85, and packages bound for New York City on Transco Zone 6 fell 7 cents to $2.97.
In the Midwest, however, temperatures were forecast to drop, and in Texas the forecasts called for temperatures as much as 20 degrees above normal. Chicago's high of 55 Monday was expected to fall to 48 Tuesday and to 37 Wednesday, 11 degrees below normal. The high in Dallas of 91 Monday was predicted to ease to 87 Tuesday and 82 by Wednesday, 12 degrees above normal.
Gas at the Chicago Citygate was quoted at $2.89, up 13 cents, and deliveries to the Henry Hub rose a dime to $2.92. Gas on El Paso Permian changed hands 18 cents higher at $2.58, and gas priced at the SoCal Border Average also added 18 cents to $2.70.
Natural gas bulls longer term got a major shot in the arm as BofA Merrill Lynch Global Research is keeping unchanged its 2017 average price forecast from April through December at $3.50/MMBtu, 37 cents above NGI's Forward Look's calculated forward curve as of March 20.
The forecast is contrary to one issued by the Energy Information Administration (EIA) earlier this month, which reduced its 2017 spot price to $3.03/MMBtu, 12% lower than the February outlook. Barclays last week also reduced its 2017 gas price forecast to $3.02 from $3.38.
"With unfavorable seasonals fading, we find the constructive fundamentals still stand: we expect strong structural demand growth to outpace a slow production recovery in 2017, necessitating a coal-to-gas switch in the power sector," said senior director Sabine Schels. "This switch will only occur at higher prices, so we see prices at the prompt moving up in the second quarter and spreads tightening.
"We reiterate our mid-year target of $3.40/MMBtu, and introduce a year-end target of $4.00/MMBtu."
Risk managers aren't buying the BofA Merrill Lynch stance and are positioning themselves for a price move lower.
"Warmer than normal temperatures in the West and snow and colder temperatures in the East is keeping the gas market rangebound," said DEVO Capital President Mike DeVooght. "The weekly storage numbers were considered slightly negative because of a smaller than anticipated draw.
"On a trading basis, we continue to look for the market to run out of steam in the $3.05-3.10 [futures] level on the spot market. We think there is a good chance that we could test the lows of late February in the next few weeks. Large speculators steadily increased their long positions last week. We will hold current short positions for producers and will look to sell May at $3.15-3.20 for speculators."
DeVooght currently advises end-users to stand aside and trading accounts to sell May futures at $3.15-3.20 should the opportunity arise. Producers and physical market longs should hold on to the remainder of an August 2016-July 2017 put strip at $2.70 offset by the sale of a $3.15 call at flat. Alternatively, he suggested a $2.75 put (strip) offset by the sale of a $3.75 call paying 7 cents.
Monday overnight weather data is calling for a warm trend to close out March.
"Unlike the prior two weekends, models mostly lost demand compared to their levels from Friday," said Commodity Weather Group President Matt Rogers in a Monday morning note to clients.
"We see a general warm-prevailing pattern now to close out March, with the warmest anomalies most frequently across the southern tier of the U.S., triggering some slight early season cooling demand at times,” he said, similar to the 90 it forecasted for Dallas on Monday. “The West sees a period of cooler to colder weather with stormy conditions coming up this week into the six-10 day, but we are also detecting some warmer/drier trends returning later in the 11-15 day range."
In its Early View storage survey conducted Friday, The Desk's survey of 10 traders and analysts estimated that Thursday's EIA storage report will show an average withdrawal of 149 Bcf, well above last year's 13 Bcf injection and a five-year average pull of 21 Bcf. The survey had a range of -140 Bcf to -160 Bcf.