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Early Touch of Winter Causes Prices to Spike

With freezes expected to penetrate much of the South Wednesday night and not lightening up much Thursday, there was plenty of cold weather to go around in sending cash prices skyrocketing Wednesday. Triple-digit gains were recorded across the board, and several points soared by $3 or more. The impact on NGI's Daily Cash Market price chart was significant, with $9 and $10 readings replacing the $7 and $8 marks that dominated trading Tuesday.

The Northeast tended to see most of the largest upticks, led by a $3.41-cent advance at Texas Eastern M3. Those less than $2 were concentrated in the West and Midcontinent, which are expected to have some areas experiencing normal mid-November temperatures Thursday.

The desert Southwest and southern Florida are likely to be the only remaining bastions of warm conditions left Thursday after a cold front moved far enough south to cause even South Texans to chill out Wednesday. The first lake-effect snowfalls of the season are due Thursday in the Northeast, according to The Weather Channel. The Midwest will be mostly dry, but experiencing highs just above freezing for the most part. Severe cold in the West will largely be limited to the region's northern half and Western Canada.

The cash market achieved its big gains solely on cold weather demand and without any prior-day support from the screen, which has fallen about 15 cents over the first two days of the week. But mid-afternoon spikes of about 75 cents or so by the December, January and February natural gas futures contracts should provide plenty of impetus to sustain the cash market's rampage Thursday.

The major price advances are being realized despite expectations of another hefty storage injection report Thursday morning. Most prior estimations of last week's build in inventories center on the 50s Bcf.

PG&E's lifting of a high-linepack OFO for Thursday (see Transportation Notes) played a minor role in western price strength.

Although Wednesday's spikes bit huge chunks out of current spot quotes' deficits to first-of-month indexes, all points remained well over a dollar or more below index. For example, Henry Hub traded about $2.80 less than its November index of $13.85.

Granted, there's a lot of cold weather, said a Houston-based marketer, but the market "seems to be making the same sort of overreaction we've seen through the summer and early fall." Cash numbers didn't see that much connection to the strength of the screen, which didn't make most of its run until after physical trading had ended, he said, noting that the Chicago citygate and a few Midcontinent points actually fell a little bit from their early highs.

"Some of the guys [buyers] around Chicago put on their helmets and started working again" for the first time in a while, the marketer jested. He pointed out that even Houston traders had to wear jackets Wednesday morning, which often seems to add a bit of psychological bullishness to the market. "I guess the Northeast's cold snap will allow folks to skate around at Rockefeller Center" in New York City during the holiday season as usual, he said.

In the Nov. 21-25 work/holiday week, the National Weather Service predicts below normal temperatures everywhere east of a line that roughly follows the Mississippi River along the eastern borders of Minnesota and Iowa before moving to the west of the river through southeast Missouri, central Arkansas, northwest Louisiana and southeast Texas. It expects above normal readings everywhere west of a line running south through the eastern Dakotas and central Nebraska before curving southwestward through northwest Kansas and the western tip of the Oklahoma Panhandle and then heading mostly westward through central New Mexico.

Tropical Depression 27 (TD27) remained a nonevent for the industry and appeared increasingly unlikely to become Tropical Storm Gamma. Satellite imagery Wednesday morning indicated that the depression had lost its closed circulation as it moved westward about 370 miles southwest of Santo Domingo, Dominican Republic, the National Hurricane Center said. It expected the system to be absorbed into a large low-pressure area over the southwestern Caribbean Sea during the following 24 hours and said it would issue no more advisories on TD27 unless regeneration occurs.

Something that could enhance the bullishness of the national spell of cold weather is the fact that restoration of shut-in Gulf of Mexico production seems to be coming to a near-standstill. Minerals Management Service said recovery volumes advanced by only 1.35 MMcf/d Wednesday, leaving 3,713.37 MMcf/d in remaining outages. That report followed the addition of a mere 27.31 MMcf/d Tuesday.

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