Traders were unwilling to commit to three-day deals for physical natural gas Friday as they not only saw a well-supplied market, but looked at the potential loss of demand stemming from Hurricane Irma. Several points traded near one-year lows, and the hardest hit regions were the Rockies, Northeast, Appalachia, and the Southeast. The NGI National Spot Gas Average skidded 15 cents to $2.40.
Futures traders were equally impressed with the potential load-killing effects of Irma and at the close October had dropped 9.1 cents to $2.890 and November had fallen 8.8 cents to $2.965. October crude oil imploded $1.61 to $47.48/bbl.
In addition to the expected loss of demand resulting from the hurricane, a soft power environment gave gas buyers for incremental power generation little incentive to make purchases. Intercontinental Exchange reported that Monday on-peak power at the ISO New England's Massachusetts Hub fell $4.91 to $19.03/MWh, and Monday on-peak power at the New York ISO Zone G (eastern New York) shed $6.00 to $22.00/MWh.
Several eastern points traded at near one-year lows. Gas on Dominion South fell 40 cents to 80 cents and deliveries to Tetco M-3 fell 39 cents to 84 cents, the lowest prices since late September 2016. Elsewhere gas at the Algonquin Citygate fell 36 cents to $1.10 and packages bound for New York City on Transco Zone 6 were quoted 48 cents lower at $1.28.
Deliveries to the Chicago Citygate dropped 9 cents to $2.74 and gas at the Henry Hub came in a nickel lower at $2.83. Gas on El Paso Permian changed hands 15 cents lower at $2.50 and gas priced at Northern Natural Demarcation was seen a dime lower at $2.67.
Gas at Opal was quoted 12 cents lower at $2.59 and Kern Delivery fetched $2.72, down 12 cents. Gas at the PG&E Citygate gave up 8 cents to $3.28 and gas priced at the SoCal Citygate retreated 15 cents to $3.03.
Longer term traders are going long natural gas. "I am a scale-in buyer of natural gas," said Alan Harry, trader and principal of Harry's RE Trust in New York. "I think this is the last time prices go down, and I have bought a lot of spreads and outright positions between $2.80 and $2.85. I am buying October - January spreads which are trading at 34 cents and I think it could narrow to 18 cents.
“What I am thinking is right now traders are selling natural gas and selling the spreads since [Irma] looks like it is going to affect demand more than supply, but this is going to be very temporary. What will happen after that is we will hear more news about less supply coming into the market. We are getting into possibly a colder winter, and we are going to be shipping more liquified natural gas.
"Another thing we are starting to see is supply cuts in crude oil. I think you will see more countries try to grab other alternative energies like natural gas. Although they are not replaceable, they don't want to see what is happening in crude oil to happen to natural gas. I think we will see more people buy the liquified natural gas," said Harry.
Traders are thinking the cooler temperatures from Hurricane Irma will keep pressure on prices near term, "while the more extended views beyond next week are beginning to favor normal trends across much of the mid-continent region. These shifting forecasts don’t appear sufficient to spark much of a price advance," said Jim Ritterbusch of Ritterbusch and Associates in a note to clients.
"By and large, the hurricane impact on gas demand appears to be outweighing the effects of curtailed production in prompting an end to the contraction in the supply surplus that has provided background support to the gas futures through most of this year. But we will also note that yesterday’s 65 Bcf injection stretched the modest storage excess against five year averages by only 7 Bcf with negligible change expected in next week’s data. So with a miniscule 15 Bcf supply surplus apt to extend into the second half of this month, downside price possibilities would appear limited.
"But, on the other hand, lack of significant warming trends across other than a few small pockets of the country during the next couple of weeks will be restricting price gains especially with the arrival of the shoulder period. As a result, we feel that this market could easily remain trapped within the approximate 20 cent confines of the past month through the rest of September even allowing for a plethora of hurricane headlines."
Weather forecasters are having difficulty ascertaining the exact impact of Irma on near term weather and temperatures. "Confidence remains on the lower end of moderate due to uncertainties with the pattern evolution tied to the remnants of Hurricane Irma," said MDA Weather Services in its morning six- to 10-day outlook. "By Day 6 the storm is expected to have degenerated into a weak remnant low over the Mid-South that eventually gets absorbed by an upper trough and pulled out. This keeps belows in the South early in the period with moderation then taking place mid-period. Aboves and much aboves are prevalent early from the Interior West to the Plains with aboves advancing into Texas and the Midwest in the latter part of the period. Models are generally warmer overall.
"The pattern uncertainties tied to the fading remnants of Irma keep confidence more limited than usual, and models are warmer across the Plains and western Midwest, especially the GFS."