Weekend Quotes Softer, But Strong Rally Seen This Week
The drop in demand over an extra-long holiday weekend and a forecasted trend of more moderate temperatures in some market areas towards the end of the weekend were enough to drag cash prices lower Wednesday. But due to a big last-minute screen jump and a very large storage withdrawal number, sources predicted a substantial rebound this week.
Variations in the amount of decline were wide-ranging. Gulf Coast, Midcontinent/Midwest and Appalachian points generally ranged from barely lower to down about 15 cents, while drops at Northeast citygates and most western points went from around 20 cents to close to a dollar (Kingsgate and Transco Zone 6-NYC). Only Malin's fall of a couple of cents or so avoided the greater overall western softness. A Houston-based trader said Gulf Coast prices, while lower, failed to soften nearly as much as he had anticipated.
After an early dip futures stayed about 5-6 cents higher most of the morning and waited until after cash trading was completed to make a late leap to $6.59, up 18.2 cents on the day. It shows that under these high-priced and volatile market conditions, traders don't want to risk going home in short positions over a long weekend, a marketer commented. Another source said EnronOnline was in the low $6.60s for over-the-counter Nymex trading shortly after the screen made an early holiday exit at 1 p.m. EST.
The futures behavior by itself, coming too late to affect swing prices Wednesday, would have been a bullish sign for this week's market, a Midcontinent marketer said. But then it was amplified about an hour later when AGA said 94 Bcf was withdrawn from storage in the previous week. "Our guess actually had been for 99 Bcf," the trader said, "but that was still a huge pull at 94, and it was spread through all three reporting regions. Unless we get back Monday [today] and the whole country is basking in balmy temperatures (which I don't expect to happen), we almost certainly should see a big increase in cash prices."
The marketer's outlook gets some support from the National Weather Service. Starting today below normal temperatures are expected to prevail through almost the entire eastern half of the U.S, except for the Northeast. The West is seeing normal temperatures, except for above normal temps in Southern California, NWS said.
Except for PG&E citygates falling more than 40 cents, numbers at the other two California points were only moderately softer compared to the rest of the West. This occurred despite the California Independent System Operator not needing to issue any more power alerts Tuesday and Wednesday after having progressed to a Stage Two Electrical Emergency late Monday afternoon. In addition, the Palo Verde nuclear plant was back to nearly 100% operation Wednesday and Diablo Canyon 1 was at 20% as it continued to ramp up operations. One western trader said he figured the relative firmness at the California border points was at least partially due to still substantial heating and power generation demand, but more importantly to an effort to replenish SoCal Gas storage. SoCal storage facilities are less than half full with the winter season barely begun.
The dire status of SoCal storage is reflected in tremendously strong Southern California border basis for December. Traders marveled during the September bidweek when border basis averaged nearly plus 250, but they thought that probably was an aberration resulting from the state's frequent power emergencies throughout the summer. "Well, you ain't seen nothin' yet," said a western trader reporting doing December border deals Wednesday at basis of plus 490. Based on Wednesday's screen, that would represent fixed prices around $11.50. He also quoted El Paso-Permian at plus 9-10 and Waha at plus 5-6, representing reversals from negative basis levels for November.
As expected, bidweek activity was almost nil prior to the holiday. A marketer said Gulf Coast pipes in general were being bid at index minus 1.25 compared to offers at index minus 1. Only Transco Station was being offered at a slight premium to index. A Midwest trader reported hearing basis of plus 7-8 for MichCon and plus 9.5-11 for Consumers Power. The slight extra strength for Consumers likely is because storage availability is better for MichCon, even though the two utilities aren't far apart in their total storage volumes, he said.
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