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California NatGas Cash Jumps Over $2, But Futures Glide Lower; November Loses A Nickel

Physical natural gas for Tuesday delivery soared as outage-driven strength in California along with robust gains in Appalachia and the Northeast were more than enough to counter broad weakness in Texas and Louisiana. The NGI National Spot Gas Average jumped 11 cents to $2.67 with plus-$2 advances at SoCal Citygate leading the charge higher.

Futures traders, however, had to digest forecasts of still lower heating loads and sent prices scurrying back below $3. At the close November had dropped 5.4 cents to $2.946 and December had shed 5.2 cents to $3.108. November crude oil gained 42 cents to $51.87/bbl.

Next-day gas soared in southern California as power driven outages as well as shortfalls from the SoCal Border caused prices to skyrocket. "It's a combination of it’s hot in the L.A. Basin, the DC intertie is out, and you can't move gas from Topock as a result of a pipeline explosion of a couple of weeks ago," said Jeff Richter, principal with EnergyGPS in Portland, OR.

"You have to draw from Aliso Canyon or at least price to that draw and with Aliso there are penalties involved so SoCal Citygate goes way up. The outage on the DC intertie has been planned for months and runs from the Northwest to the L.A. Basin.

"Wind generation is low and the evening ramp [power prices] cleared over $100.

"You wouldn't have to take gas from Aliso Canyon if the Topock line was in play, but it’s not," said Richter.

Gas at the SoCal Citygate vaulted $2.29 to $5.30 and deliveries priced at the SoCal Border Average added 30 cents to $2.98. Deliveries to Malin fell 3 cents to $2.65 and gas at the PG&E Citygate rose 2 cents to $3.18.

Eastern prices rose as well. Gas at the Algonquin Citygate added 10 cents to $3.26 and deliveries to Tennessee Zone 6 200 L rose 10 cents to $3.09. Packages on Tetco M-3 came in $1.16 higher at $1.69, and gas headed for New York City on Transco Zone 6 gained $1.55 to $2.85.

Gas at the Chicago Citygate was quoted 3 cents higher at $2.81 but deliveries to the Henry Hub skidded 14 cents to $2.87. Gas on El Paso Permian rose 2 cents to $2.49 and parcels on Panhandle Eastern eased 2 cents to $2.55.

Futures traders weren't impressed with the day's slide, but still see upside potential. "It looks kind of weak, but it has held $2.92," said a New York floor trader. "We are coming into the draw season and that could keep it up. I like scale down buying down to $2.85 to $2.88. I think it has a shot to stay up here."

A Midwest trader suggested holding any existing long positions as long as November futures hold above the $2.80 level.

Given the forecast loss of heating load the day’s futures setback may not have been so bad. "The latest forecast is warmer than Friday's forecast across much of the CONUS [Continental United States], though the East and West Coasts are cooler for Days 11-12," said WSI Corp. in its morning 11- to 15-day report to clients. "Some of these changes are offset by the period shift, and” gas-weighted heating degree days “are -2.4 for Days 11-12 to 51.5 for the whole period, which are still 10.7 less than average.”

WSI offered the caveat that "there is guidance to support risks in either direction. Teleconnections and the GFS guidance offer colder risks and trend to the forecast across the eastern two thirds of the CONUS.”

Longer term traders continue to try and wrap their heads around expected winter weather, and early indications point to a cooler than last year winter, but that's not saying much. "Weather continues to trend warmer as we head into the Winter phase, storage builds continue to be beefy, production continues to impress and exports are at full-tilt," said Scott Shelton of ICAP Commodities in a morning note to clients.

"Looking back on 2017, we think we may have written the same line a dozen times across as many weeks this year. We don't think anybody foresaw a weather year like the one that's soon to end. Early views on the coming Winter all mostly point to a cooler-than-last-year scenario, but not hugely cooler. Backloaded? Probably, or at least that's the hope, but we're not holding our collective breath."

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