Fundamentals, Screen Support Big Rally at Most Points
New bouts of harsh winter weather approaching after a brief respite, the end of a holiday weekend slump in industrial load, suspicions of a large storage withdrawal to be reported Thursday, and sharp spikes in the energy futures complex (especially among the petroleum-based products) all combined to generate large rebounds at nearly all points Tuesday.
New England points (Algonquin citygate, Dracut and Tennessee Zone 6) were the exceptions to overall firmness as the region remained physically frigid but relatively balmy in comparison with the record-setting subzero cold of last week. Iroquois Zone 2, which connects with New England markets but also delivers gas in the New York City metropolitan area, gained about 25 cents but showed no sign of trying to revisit the $76 spot market record it set last week.
Outside the Northeast, price advances were generally in the range of 40-80 cents. A major factor in the general market gains was that very cold temperatures are expected to occupy much more of the nation this week, as opposed to remaining confined primarily to the Northeast for much of last week.
A strong indicator that the South will be considerably chillier than previously was Florida Gas Transmission's issuance of an Overage Alert Day notice due to forecasts of near-freezing conditions in the northern half of Florida (see Transportation Notes). A utility buyer in the state said the thermometer had bottomed out at 34 degrees early Tuesday morning in her city, but she bought only a small production-area package because "we've actually been running long [on supply] for a while. She noted that FGT's OAD carried a loose 20% imbalance tolerance, and that most other pipes aren't that lenient in OFO-like actions.
Crude oil futures soared by more than a dollar to $36.20/bbl on the February contract's expiration day as traders pondered the prospects of returning cold in the North and recent reports of low supply inventories. One source pointed out that crude had hit $40 fleetingly during the Iraq war last year; what will count most now is whether it can remain around $36 for any sustained period, he said. Heating oil, unleaded gasoline at New York Harbor and propane futures also made major gains in concert with the crude spike.
News of a major explosion in a gas plant at Algeria's largest coastal refinery complex sent a few tremors through not only the crude oil market, but also among natural gas traders because the complex was estimated to be responsible for about a quarter of the country's LNG exports. However, reports said that little immediate impact on U.S. LNG supplies is expected.
A marketer thought Nymex traders were more wary of the returning cold snaps than they were of a potential big storage withdrawal report. It will be mostly the Upper Midwest that gets the worst of this week's bad weather, he said, while Chicago and the rest of the Lower Midwest appear to be destined for more "normal" late-January weather. He considered it a positive development that cash tightened relative to the screen Tuesday (Henry Hub's rise of about 75 cents into the mid $6.10s, along with a futures gain of only 35.1 cents to $6.291, left the two numbers less than 15 cents apart; the gap exceed half a dollar Friday.)
A Northeast trader affirmed that the region is due for another heavy blast of winter in the next day or two, but said it isn't expected to be as bad as last week's.
Prices will continue to jump Wednesday, a producer predicted confidently. Highs in the Northeast were getting above the 20s Tuesday, he said, "and it's not going to get much warmer for the rest of January. At least it's not as bitterly cold as last week." He is banking on the upcoming storage report to feature a pull of no less than 200 Bcf, but admitted that for the estimate to have a large effect, it "practically has to be outlandish."
Western weather is expected to split along an east-west line running along the northern edge of Arizona through the southern tip of Nevada and into central California. New Mexico and most areas north of that line will be cold enough for moderately heavy gas load, while temperatures in the far Southwest will remain relatively moderate.
In its forecast for the Jan. 26-30 workweek, the National Weather Service looks for below normal temperatures throughout the western half of the U.S. and in the Northeast and Upper Midwest. Above normal readings are predicted for the eastern two-thirds of the South and parts of the Mid-Atlantic. Other parts of the Mid-Atlantic, along with the Lower Midwest and western reaches of the South, should see normal temperatures, NWS said.
Citigroup analyst Kyle Cooper said his final estimation for EIA's storage report Thursday sees a draw in the 180-190 Bcf range.