Physical natural gas for Wednesday delivery ratcheted higher in Tuesday's trading as traders braced for the warmest temperatures of the summer so far. Healthy gains in the Northeast, Texas, Louisiana and the Midcontinent were easily able to offset weakness in California and the Marcellus, and the NGI National Spot Gas Average added a dime to $2.93.
Longer term weather forecasts kept feeding the futures bulls, and at the close August had added 6.8 cents to $3.088 and September had risen 6.6 cents to $3.073. August crude oil continued its winning ways, rising six of the last seven sessions and gaining 38 cents to $46.40/bbl.
Near-term heat is expected to give the market a boost. "Temperatures east of the Mississippi River are going to take a material turn higher this week," said EnergyGPS in a morning note to clients. "Thursday through Saturday's forecast is showing the day-time highs stretch into the mid to high 90s, which will put this as the hottest days of the summer thus far. Compounding the heat will be high humidity making the indexes near triple digits."
Market centers in the nation's heartland also posted strong gains. Gas at the Chicago Citygate rose a dime to $3.00 and deliveries to the Henry Hub rose 7 cents to $3.09. Gas priced at the NGPL Midcontinent Pool added 7 cents to $2.83 and gas on El Paso Permian was quoted 9 cents higher at $2.74.
Out west weak California pricing tempered the day's trading, with SoCal Citygate changing hands at $3.19, down 4 cents. Kern Receipts were seen at $2.76 and Kern Delivery was flat at $2.89. Gas at Malin rose 7 cents to $2.81.
Marcellus basis continued to weaken as the industry's marquee construction project, the Rover Pipeline being constructed by Energy Transfer Partners, continued to have its difficulties.
The company has admitted that the initial start-up could be delayed, but for now the consensus is that the final Phase 2 calling for deliveries out of the Marcellus to Midwest, Gulf, and Canadian points is on track.
ETP/Rover spokeswoman Alexis Daniel told NGI that "as a result of our continued efforts to work with" the Federal Energy Regulatory Commission and the Ohio Environmental Protection Agency, "we are anticipating that the Phase 1 section has the potential for an in-service date of late summer of 2017. At this time we do not anticipate any delays to the November 2017 in-service date on Phase 2."
"Our take and I think that of the market's is that even if Phase 1 does come online, there are enough issues with the laterals, drilling restrictions, regulations and their own situation, that there will not be a material increase in production," said Stefan Baden, associate with EnergyGPS, a Portland, OR-based energy and consulting firm.
"We do expect the full Phase 2 to come online as planned, so if something were to delay that, that would make things worse."
Gas at the Henry Hub added over a nickel, but deliveries to Marcellus points such as Dominion South dropped 2 cents to $2.27, gas on Transco Leidy rose a cent to $2.30, and Tennessee Zone 4 Marcellus added 3 cents to $2.24.
August natural gas opened 6 cents higher Tuesday morning at $3.08 and managed to hold on to the gains as the warmest temperatures of the season were expected to roll through the market.
Longer term weather models overnight, however, turned slightly cooler. "[Tuesday's] six- to 10-day period forecast is generally cooler than yesterday's forecast, except across the southwestern US," said forecaster WSI Corp. in its morning report to clients. Continental United States population-weighted cooling degree days "are down 2.3 to 59.2 for the period, which are 3.8 above average.
"Forecast confidence is average. Medium range models are in reasonably good agreement with the progression of the large scale pattern. There are some technical differences and inherent uncertainty with increasing rain chances over the eastern and southern U.S."
Near-term heat is good enough for traders. "Although extreme heat across key consuming regions of the U.S. remains elusive, coverage of warm temps and extension into next month has put the money managers back on the defensive," said Jim Ritterbusch of Ritterbusch and Associates in a morning report to clients. "With the warm temps now stretched, the dynamic of storage surplus contraction could remain as a significant supportive influence for a couple more trading sessions.
"However, we feel that Thursday's EIA [Energy Information Administration] storage report will offer a bearish figure that could potentially push nearby futures back to below the $3.00 level. Our expected injection will likely prove significantly larger than most street ideas as we anticipate that the prior week's much smaller than normal build will see some upward adjustment. With this in mind, we will look for additional gains to the 3.12 area prior to the issuance of the EIA report as an opportunity to accept profits and stand aside."