A couple of flat points and one in the Midcontinent that rose about a nickel constituted the only exceptions to a continuation of falling cash prices in Wednesday's launch of the March aftermarket. Moderate to cool weather forecasts for many areas and prior-day futures weakness were responsible for the overriding softness.
Losses ranged from a little less than a nickel to a little more than 45 cents and were largest at Northeast and Appalachian points. The smallest drops were concentrated in the Rockies/Pacific Northwest, California and Arizona/Nevada markets. Most of the coldest weather is currently in the West (Denver is expected to repeat Wednesday's low in the mid-teens Thursday), and there were a couple of supply tightness issues in the region.
PG&E issued late Tuesday a customer-specific low-inventory OFO for Wednesday and extended it through at least Thursday (see Transportation Notes), resulting in flat quotes at the PG&E citygate. And Kern River reported low linepack systemwide, saying its linepack had decreased by about 100,000 Dth during Tuesday's gas day "due to supply shortages and drafting by delivery point operators." With maintenance at Veyo Compressor Station scheduled to begin next Monday, the pipeline said, it will "take whatever actions are necessary to maintain linepack" if drafting continues. Kern River numbers fell a little more than a dime.
As March begins, cash-futures convergence has only a short distance to go. Henry Hub traded mostly in the mid $7.20s Wednesday, only about a nickel back of the April futures contract, which fell another 23.3 cents to $7.300.
Midwest prices fell despite "blizzard or near-blizzard conditions" due Thursday in the eastern Dakotas and much of the Upper Midwest, according to The Weather Channel. But spring-like conditions continue to dominate in the South, and while near-freezing lows continue in the Northeast, heavy use of storage is believed to have sapped the demand for new production.
Gulf of Mexico production had no problems with hurricanes last year, but may not be so lucky this year, according to a report by the National Oceanic and Atmospheric Administration (see related story). With El Nino conditions having faded, cooler-than-normal surface water temperatures have developed in the east-central equatorial Pacific, which signals a possible transition to La Nina conditions, scientists at the federal agency said. La Nina implications include both the likelihood of a more active Atlantic hurricane season and a persistence of drought in the West that could crimp hydroelectric supplies.
There's no mystery about dropping prices, said a marketing representative for several Gulf Coast independent producers. The market anticipates little weather-based demand for the foreseeable future, and a lot of people have storage accounts that they must reduce to mandated amounts by the end of March. For that reason she expects a quiet market during March, "which it usually is." Her company indexed all its bidweek sales, she said.
A Northeast utility buyer was thinking along similar lines. It's near the end of winter, he noted, and although the year-on-five-year storage surplus has been reduced, plenty of inventory is still left underground, so it's no wonder that prices are getting softer. His company bought a little baseload for March and expects to go into the daily market occasionally. "Through mid-January we were holding off on new purchases" because the early winter had been so mild, the buyer said, but the freezes that have invaded the Northeast since then "leave us very comfortable" about meeting mandatory storage withdrawal ratchets.
A Reuters news service survey of 22 industry players found an average expectation of a 143 Bcf storage withdrawal to be reported for the week ending Feb. 23. Estimates ranged from 130 Bcf to 158 Bcf.
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