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Futures Outdistance NatGas Cash Lower; May Falls 9 Cents

Physical natural gas for Wednesday delivery and futures both fell hard in Tuesday trading as forecast energy demand across New England and Mid-Atlantic markets was expected to decline.

Declines were pervasive, and only a few market points managed to post gains. Declines in Texas and Louisiana were a bit greater than those in California and the Rockies, and New England locations were actually a few pennies higher on the day.

The NGI National Spot Gas Average fell 6 cents to $2.90. Futures traders took one look at expected warmer weather and now target spot futures about 25 cents lower. At the close May had dropped 8.8 cents to $3.150 and June had shed 8.5 cents to $3.224. May crude oil added 32 cents to $53.23/bbl.

"Natural gas is a sell now, without a doubt," said a New York floor trader. "Miracle of miracles, it could hold $3, but I don't think so. Warm weather is coming and builds are starting. Long-term objective on the downside is $2.82, and I would come in and do a sale every day and just wait for it to drift off; $2.82 long term, and eventually in the $2.60s," he said.

Some see technical factors at work. "Today's selloff appeared more related to technical rather than fundamental factors as we saw no significant change in short-term temperature forecasts," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Tuesday. "Most weather outlooks have tilted in favor of mild patterns, with projections out to about the 26th of this month. It appears that support from non-weather items, such as strong exports and downsized production, is insufficient to force much reduction in the storage surplus, at least through the balance of this month.

"While the EIA storage report could prompt the usual Thursday volatility spike, we won't look for much price follow-through in either direction. However, today's violation of a clearly defined up trend line extending back to the end of February could prompt an assertive response to a bearish figure such as an injection of more than the five-year average of 12 Bcf. Overall, we are sidelined from a trading perspective while our bias favors lower rather than higher prices for the time being. From a chart perspective, further weakness to about the $3.05 level per May futures would appear likely where we may look to begin establishing some bull spreads as a longer-term or position-type trade."

Weather models overnight turned slightly warmer in the Midwest and East. "The forecast once again trends in the warmer direction today in this period, with these adjustments focused in the Midwest from mid to late period and in the East at the onset," said MDA Weather Services in its Tuesday morning six- to 10-day outlook.

"The Southeast, likewise, carries warmer leanings in a pattern which has above and much above normal temperatures being steady throughout the period. While the northern tier sees some day-to-day variability, the Midwest and East are mostly on the warm side of normal overall, thanks to a still strong flow out of the Pacific and associated active storm track across the country. Confidence is increased slightly from yesterday."

In physical trading, spot prices had some strong headwinds in the form of forecast lower energy demand over the next two days. ISO New England forecast that peak power load Tuesday of 14,600 MW would ease to 14,260 MW Wednesday and 14,200 MW Thursday. Across the PJM footprint, Tuesday peak load of 32,840 MW was expected to drop to 31,715 MW Wednesday and 30,369 MW Thursday. The New York ISO predicted peak load Tuesday of 17,592 MW falling to 17,794 MW Wednesday and 17,509 MW Thursday.

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Gas on Tetco M-3 fell 4 cents to $2.77, and gas bound for New York City on Transco Zone 6 drifted 2 cents lower to $2.83.

At the Algonquin Citygate, next-day deliveries managed to rise 10 cents to $3.20, and gas on Iroquois, Waddington shed 6 cents to $3.22. Gas on Tenn Zone 6 200L rose 2 cents to $3.18.

Major market centers saw quotes ease about a nickel. Deliveries to the Chicago Citygate skidded 9 cents to $2.94, and gas on El Paso Permian was quoted 2 cents lower at $2.74. Packages at the Henry Hub retreated 7 cents to $3.08.

Gas at Northern Natural Demarcation came in a nickel lower, and Kern Receipts changed hands 5 cents lower as well. Gas priced at the SoCal Border Average dropped 3 cents to $2.85.

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