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Prices Up, But Likely to Follow Screen Lower

Prices Up, But Likely to Follow Screen Lower

Based largely on Tuesday's screen run-up and to some extent on moderately increasing heating load in the West and some northern areas, swing prices rose Wednesday from a little less than a dime to about 45 cents. All but two points recorded double-digit gains.

Cold and occasionally snowy weather is continuing in much of the West, and overall demand is being augmented by growing heat in parts of the South, with some cities experiencing date-specific records for high temperatures, according to The Weather Channel. But unseasonable weather ranging from merely chilly to downright warm continues to dominate in the Midwest and Northeast.

Once again Nymex's energy futures complex was drawing rapt attention from cash traders, but this time it was for spectacular plunges that were much bigger than the previous day's advance. On expiration day the November natural gas screen dropped nearly 80 cents to go out at $7.626, while crude oil for December delivery sagged by $2.71 to $52.46/bbl. The exchange's other petroleum-related offerings also saw huge plunges.

Wednesday morning reports by the American Petroleum Institute and Department of Energy ignited the steep slide in energy futures with a larger buildup of crude oil stocks last week than expected. However, some sources were puzzled about why there was such a tremendously bearish reaction at Nymex when the reports also said heating oil inventories fell by 600,000 barrels, the sixth straight weekly decline for the product.

Asked why both oil and gas futures fell so hard when heating oil stockpiles continued to drop with winter not having started yet, analyst Jay Levine of New Hampshire-based Advest Inc. replied, "The bottom line is, when the market is so high anything is possible -- bearish, bullish or whatever."

A Northeast marketer thought the big slide was mostly due to the crude oil futures contract being way overbought. Gas futures were both also overbought and following the crude contract down, he said. Saying he was almost solely a basis trader, the marketer said the screen volatility had only minor impact on November basis, adding that it "didn't run up too strong yesterday [Tuesday] and didn't come off much today." He is still not getting any feel of winter in the Northeast, saying, "We're due for temperatures in the 70s Sunday."

But on the other side of the continent, a Calgary-based producer said his region certainly is getting a winter feel. Temperatures Wednesday were not far above freezing, he said. Discussing the recent huge screen volatility, he said it makes marketers' jobs more difficult because they're both buying and reselling gas. "It's a little simpler for us" to be on the sales end only, he added.

The producer said he didn't do any new fixed-price bidweek deals Wednesday, but was hearing that November numbers were going up at first because of the soaring screen on the previous day, but fell along with futures throughout the rest of the day. Deliveries into the Chicago-area Nicor LDC were bid at $7.76 Wednesday after Chicago citygates had traded pretty close to Nymex's $8.402 daily settlement late Tuesday. Chicago is only 3-5 cents over Henry Hub for November, he said.

It's a safe assumption that just as swing prices went up Wednesday based mostly on the previous day's futures run-up, they'll be headed down again Thursday, said a Gulf Coast producer.

Referring to the tremendous distances up and down covered by the screen in the past two days, one source commented, "I don't really think I'd want to be a futures trader -- too much chance of getting an ulcer."

The restoration of shut-in Gulf of Mexico volumes made a significant advance. Minerals Management Service said that with 18 companies reporting to it, remaining shut-ins stood at 1,314.08 MMcf/d Wednesday, or 200 MMcf/d less than the day before. The cumulative amount of deferred production since Sept. 11 rose to 104.53 Bcf, the federal agency said.

The National Weather Service sees a sharp East-West divide in temperature trends during the Nov. 1-5 workweek. It predicted above normal temperatures east of a line from central Michigan to southeastern Louisiana. Below normal readings are due west of a line from central Montana to the eastern border of New Mexico, NWS said, while the central section of the U.S. should see normal conditions.

Discussing his estimation of a 29-39 Bcf storage injection to be reported Thursday for the week ended Oct. 22, Citigroup analyst Kyle Cooper said, "This week carries a high degree of uncertainty. Although our estimations in general have been quite accurate, with storage levels reaching near maximum capacity in some areas, injections may be lower due to facility limitations. However, with cash still deeply discounted to futures, there is huge economic incentive to inject as much as possible. If that cash discount remains in place, lower than expected withdrawals in November may be reported as players choose a cheaper spot price. Contrary to that idea is also the realization that the weighted average price of gas injected throughout the April-October period will be significantly cheaper than current cash prices. In sum, we may witness some extremely perplexing cash to futures and weekly storage change patterns in the next few weeks."

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