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NatGas Cash Steady, But Futures Keep Marching Higher; June Adds A Nickel

Physical natural gas for weekend and Monday delivery moved little in Friday's trading as temperature outlooks across major markets were benign and traders saw little incentive to commit to three-day deals. Strength in Louisiana and the Southeast was able to offset weaker pricing in California and the Northeast, and the NGI National Spot Gas Average rose two cents to $3.06.

Futures continued to work higher but are well above cash quotes and seen as being overbought. At the close June was up 4.8 cents to $3.424; July had added 3.7 cents to $3.498. June crude oil gained a penny to $47.84/bbl.

Weekend and Monday temperature forecasts are mixed with eastern points below normal and the Midwest above. Forecaster Wunderground.com said Boston's high of 52 Friday would reach 53 Saturday before making it to 59 by Monday, 6 degrees below normal. Philadelphia's 59 high Friday was expected to drop to 52 Saturday before rising to 69 by Monday, 4 degrees below normal. The Windy City's high of 66 Friday was seen climbing to 75 Saturday and Monday, six degrees above normal.

Gas at the Algonquin Citygate fell 2 cents to $3.16 and packages on Dominion South shed a penny to $2.87. Deliveries to New York City via Transco Zone 6 fell 7 cents to $2.93 and gas at the Chicago Citygate was quoted 2 cents lower at $3.10.

Packages at the Henry Hub rose a nickel to $3.25 and deliveries to El Paso Permian lost a penny to $2.83. Gas at Opal was unchanged at $2.89 and gas priced at the SoCal Citygate slipped a penny to $3.28.

Deliveries to Tetco M-3 fell six cents to $2.90, but pricing next week is likely to get more volatile. Tetco M-3 Zone compressor capacity is set to go to zero starting next week through May 30, according to industry consultant Genscape. Tuesday, May 16, Tetco will reduce its York County, PA compressor to 0 MMcf of flow.

"During this outage a handful of citygates, power plants, and interconnects will be limited to a total of 350 MMcf/d of deliveries, and the affected locations have averaged 451 MMcf/d over the last seven days, with a single day maximum of 531 MMcf/d. TETCO listed 34 locations to be affected by this maintenance,” Genscape said.

Genscape data shows that “next week is forecasted to be warm nationwide. Cooling demand is expected to pick up mid next week, with the northeast having 7 CDDs, up from 12.4 HDDs this weekend. The warm temps are forecasted to last through the 25th.”

Futures traders see the market as overextended with forecasts for the second half of May looking supportive. "Although the price trend and below-average storage injections both keep the upside open, we also note that the market is arguably somewhat overvalued, with nearby futures trading at a 22¢ (6.9%) premium to the five-year average price for this time of year at a time when storage is still 275 Bcf (13.6%) above its corresponding five-year average," said Tim Evans of Citi Futures Perspective.  "By this measure, natural gas is not cheap."

Gas buyers responsible for incremental supplies for power generation across the PJM power pool will have challenging weather and not much in the way of renewables to offset purchases. "Unsettled weather and cool conditions are expected into the weekend before a big warm-up early next week," said forecaster WSI in a morning report to clients. "A frontal boundary will remain the focal point for clouds along with areas of light rain and drizzle today.

"Wet weather and a northeast breeze will knock temps down into the 50s and 60s, and a storm system will develop and track up the East Coast tonight through Saturday, with even more rain, gusty winds and cool conditions across the Mid-Atlantic. A variable north-northwest wind will support modest wind gen through the weekend. After a brief decline, a developing southerly wind will boost wind gen by Tuesday. Output will generally range 2-3 GW."

Traders suggest holding on to, but not adding to, current short positions. "This market is currently prioritizing the dynamic of surplus contraction over the static factor of an approximate 275 Bcf storage overhang," said Jim Ritterbusch of Ritterbusch and Associates in a morning note to clients. "[Thursday's] much smaller than expected injection furthered the mid-week price up spike with some chart related buying adding to the bullish momentum.

"Although we suggest holding short June positions established above the $3.31 level, we are also advising against fresh shorts at current levels given the chart improvement seen yesterday off of a bullish EIA storage report. The money managers have been gravitating toward the long side of the market for several weeks and currently have little reason to accept profits. Various non-weather factors remain aligned to reduce weekly storage injections to significantly lower levels that might be implied by heavy emphasis on HDD or CDD accumulation.

"Holding a short position currently is being challenged by the dynamic of surplus contraction and this week's price strengthening appears to be discounting some additional significant reductions in the supply overhang for a couple more weeks. Although the spot trade is having difficulty keeping pace with the futures rally with the weak cash basis restricting curve strength, this doesn't appear to be a sufficient consideration to prompt much sell hedging required to force a significant price decline."

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