On the eve of the official start of the 2007 Atlantic hurricane season, with the remote possibility of the birth of Tropical Storm Barry in the background, prices were close to flat in most cases Thursday. The primary exceptions were larger losses of up to about half a dollar at some points in the Rockies and at Westcoast Station 2 in Western Canada.
Rising heat levels that had boosted power generation load for gas earlier in the week are receding in several areas. Even the South will be hard-pressed to make it above the low to mid 80s Friday, and a good portion of the Midcontinent and Lower Midwest will feel quite comfortable. However, highs near 90 will persist in the lower Northeast.
A string of mixed price movement that started more than two weeks ago was left intact by Thursday's trading. Wednesday's 21-cent screen gain apparently had little next-day impact in the cash market as most points were up or down from flat by about a dime or less. Gains tended to slightly outweigh losses.
With Houston-area highs starting to rise into the upper 80s, the Houston Ship Channel and Katy were among the few points to realize upticks of more than a dime.
The Energy Information Administration's estimate of a 107 Bcf storage build for the week ending May 25 dovetailed nicely with consensus industry expectations. Although the volume continued to increase the year-on-five-year average surplus, the bearish implication was quickly dismissed by analysts who pointed out that large injections are common at this time of year as traders try to stash away as much gas as possible in advance of hurricane season and summer heat (see futures story). The result was a minuscule 0.6-cent drop by July natural gas futures in the midst of moderate strength among Nymex's petroleum product offerings following moderately bullish inventory reports (delayed from their usual Wednesday announcement by the holiday weekend).
A systemwide high-inventory OFO by PG&E (see Transportation Notes) had little impact on prices at either Malin or the PG&E citygate, both of which were flat to slightly higher.
Weather 2000 stressed Thursday that a disturbance near the mouth of the Gulf of Mexico only "might" become (Sub)/Tropical Storm Barry within 96 hours. "The Atlantic hurricane season doesn't even officially commence until June 1...and we're already talking about the potential for the second named storm of the year, but such is the life amidst a multi-decadal active hurricane cycle," the New York City-based consulting firm said. "Located just east of Cancun [Mexico] (near the mouth of the Gulf of Mexico/Yucatan Channel), wind shear remains substantial and an inhibiting obstacle, but it [disturbance] is situated atop warm waters and the atmospheric environment could gradually improve over the next few days. Steering currents should lead the system to technically and eventually "enter the Gulf," but this should be a relatively short course towards the Florida peninsula."
"That's a good question," a Calgary-based producer responded when asked what prices will do Friday. Since weekend loss of industrial load will be involved, he said he would expect "a little down but I don't see a collapse."
The Calgary area should be seeing pretty nice weather with temperatures getting to the high 70s for the next few days, the producer went on. He was thinking that June heat might knock out a couple of Alberta gas processing plants for a while. Admitting that he was not sure why, he said it seems like the first heat wave of the summer season makes it get too hot for plant compressors to function properly until they get acclimated.
Area weather is currently so mild that "it's almost like we're in Hawaii," said a utility buyer in the Lower Midwest. With current burns very light, her company was buying mostly for storage since Northern Natural Gas is opening its facilities to customer injections starting Friday.
The buyer said the utility had a fair amount of electric generation load during most of May due to a major thunderstorm early in the month causing wet coal problems for its power producing customers, but that has been tapering off recently now that the coal has dried out.
Commenting on the failure of PG&E's OFO to depress Northern California prices, a western trader said he thought the OFO was a "warning shot." Look at the lenient imbalance tolerance of 16%, he noted. That probably meant PG&E "wanted to get the big offenders in line," meaning the customers who probably were overdelivering into the system in the past day or so for end-of-month balancing purposes. But Friday marks the start of a new month, he added, so he doesn't expect the OFO to be continued.
The trader said he expects Friday's prices to be "flattish or slightly higher," both as a function of "following the screen" and also from traders recognizing the potential for a second named storm so early in the hurricane season.
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