Thursday deliveries of physical natural gas overall fell another 8 cents on average Wednesday as soft power prices and a lack of not only supportive weather, but also a non-existent Atlantic tropical environment, continued to pressure the market. October natural gas options expired Wednesday and at the close of futures trading October had risen 0.1 cent to $3.493 and November had eased 1.3 cents to $3.546. November crude oil slid 47 cents to $102.66/bbl.
Midcontinent and Midwest points were down about 7 cents, even though weather forecasts for the region called for slightly above normal temperature readings. Jillian MacMath, AccuWeather.com analyst, said that "though fall has officially begun, some summerlike warmth is still clinging to Chicago. After temperatures in the upper 60s kicked off the week, the mercury will climb into the low 70s Wednesday, [and] sunshine will be abundant." She added that "warmth will build as the week progresses, reaching the mid to high 70s by Thursday and Friday, [and] storminess will clear after Sunday morning, yielding temperatures in the low 70s and more sunshine."
The Wednesday high in Minneapolis of 74 degrees was expected to jump to 79 Thursday before reaching 80 on Friday. The normal high in Minneapolis this time of year is 68. Chicago's Wednesday high of 69 was predicted to rise to 73 Thursday and 76 Friday. The normal high in Chicago for mid-September is 72. Omaha, NE's high temperature of 79 Wednesday was anticipated to surge to 86 on Thursday before easing to 84 on Friday. The seasonal high in Omaha is 74.
Midwest marketers were scratching their heads trying to figure out ways to get gas from Chicago to points such as Michcon and Consumers, which were trading about 18 cents above Chicago Citygates. "Into Consumers there is quite a bit more variety of how to serve that market, but Consumers themselves have basically shut that market down," said a Houston-based marketer working the Midwest. They have isolated that market by rotating where they get their gas from. They own the hub where all the gas goes in. Gas comes in off Panhandle, Trunkline, and ANR and they select each month which pipeline they want to have deliver gas. Michcon is ANR and it's just a matter of how to get it there.
Gas at the Chicago Citygates was quoted 9 cents lower at $3.55 and on ANR SW next-day deliveries came in at $3.38, 7 cents lower. On Panhandle Thursday gas was seen at $3.27, also 7 cents lower, and at Northern Natural Ventura gas traded at $3.49, 7 cents lower as well. Deliveries to Demarcation changed hands at $3.48, 8 cents down and at NGPL Midcontinent Pool Thursday packages were seen at $3.39, down 7 cents.
Both Michcon and Consumers settled Wednesday at $3.73, down 5 cents and down 6 cents respectively.
Marcellus points bucked the trend. On Tennessee Zone 4 Marcellus Thursday gas was quoted at $1.89, up 15 cents and on Transco-Leidy Line next-day gas changed hands at $3.16, higher by 64 cents.
Power prices were generally lower. IntercontinentalExchange reported Thursday peak power at the New York Independent System Operator Zone G (eastern New York) market point fell $6.43 to $38.95/MWh and at the New England Power Pool's Massachusetts Hub peak Thursday power fell $1.91 to $37.17/MWh. Power at PJM West, on the other hand, rose $1.73 to $36.89/MWh.
Major hubs in some cases were down a dime or more. At the Henry Hub Thursday gas was quoted at $3.52, down 7 cents and gas bound for New York City on Transco Zone 6 fell 10 cents to $3.57. At the PG&E Citygates next-day gas was seen at $3.88, down 7 cents and at Opal Thursday gas was quoted at $3.29, down 11 cents.
Thursday's gas storage report may be the end of sub-par builds for a while. Last year a plump 79 Bcf was injected and the five-year average stands at a 75 Bcf build. Ritterbusch and Associates calculates an increase of 68 Bcf and IAF Advisors in Houston calls for a 77 Bcf injection. A Reuters survey of 22 traders and analysts revealed a sample mean of 76 Bcf with a range of 61 Bcf to 83 Bcf.
Short term traders didn't have an immediate fix on the market's next direction. "I thought we would be at $3.75 for Tuesday's option expiration, but I was dead wrong," said a New York floor trader. "I don't know if traders will push the market lower once October goes off the board or rally it back, but it looks like we might come off a little more the next couple of days.
"It looks like traders are picking their [buy] spots, but there is no collection of bids down below."
Analysts attributed Tuesday's 11-cent price pounding to a combination of a weaker cash market, returning Colorado production, and no storm threats in the Atlantic.
Tim Evans of Citi Futures Perspective sees Thursday's upcoming storage report as more important than usual. "While the market routinely has some reaction to the DOE weekly natural gas storage data, we view the report for the week ended Sept. 20 as more pivotal than usual. The period in question featured both warmer than normal temperatures and some production losses due to flooding in Colorado."
Evans' forecast for the weekly injection is for a 61 Bcf build, but he said "we're seeing injection forecasts ranging above 80 Bcf, a dramatic jump from the prior week's 46 Bcf refill and more than the 75 Bcf five-year average for the date. If we do see an above average storage injection despite the warm temperatures and production losses, we agree this would make a bearish statement."
Evans counsels standing aside the market and awaiting a low risk entry.
Addison Armstrong of Tradition Energy sees the market looking down the road and anticipating ending storage inventories only about 100 Bcf shy of last year's 3,930 record build. He noted that Tuesday's decline was "The biggest one-day drop since June 27, [and] was triggered by temperature forecasts that showed late-summer heat in the Midwest is finally set to dissipate as extremely mild conditions are expected over most of the country. The likely end of air-conditioning demand and temperatures not yet cold enough to trigger space heating load will allow for a faster pace of storage injections between now and November. If the total storage injection over the next seven reports just equals the five-year average, we will still enter withdrawal season with nearly 3.8 Tcf of gas in storage," he said in morning comments to clients.
WSI Corp. in its morning 11- to 15-day forecast said "today's forecast is a bit cooler in the north central US compared to yesterday. Confidence is near average today with fair model agreement through the first week of October."
WSI added that risks to the forecast include "a persistently negative NAO [North Atlantic Oscillation] will eventually work to carve an eastern U.S. trough with cooler temps developing over time. However, the WP index will remain strongly positive which will work against the pattern change idea, favoring warm temps in the central U.S."