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Heat Losses, Hub Restart Cause Overall Softness

Despite a mini-heat wave approaching in the Midwest and strong prior-day screen support, prices fell at all but three points Wednesday. Temperatures are remaining high in the southern tier of states but are due to retreat significantly Thursday in much of the Northeast and Rockies. The late-afternoon news of the Independence Hub restart Tuesday played a part in Wednesday's softness because of the anticipated return of major supply volumes in the Gulf Coast, and a couple of sources suggested that the cash market retreated because prices had just become top-heavy from their own strength in recent weeks.

The overall losses ranged from about a nickel to about 75 cents and were largest in the Midcontinent, Rockies and Southwest basins.

Highs will be approaching and in some cases reaching 90 degrees in most of the Midwest Thursday, which limited regional citygates to declines of less than 20 cents. However, although it will still be hot in the Midcontinent, Thursday's weather will be milder than conditions earlier in the week.

Most of the West is cooler than normal by now, and the Rockies may even have a slight bit of heating load developing with a mid-40s low due in Denver Thursday. But the loss of power generation demand pushed prices much lower.

A partial outage of Maritimes & Northeast U.S. scheduled for Thursday through Saturday (see Daily GPI, May 30) resulted in deliveries at Dracut recording one of Wednesday's rare gains. And as a utility buyer in Florida pointed out, "It's still very hot here" in the Sunshine State, which is why Florida Gas Transmission (FGT) extended an Overage Alert Day into its sixth day Wednesday and caused the Florida citygate to be another rising point. However, production-area numbers into FGT were down.

A Gulf Coast producer said he wasn't too surprised by the cash market declines despite some supportive fundamentals. Prices were due for some consolidation because they were "already pretty high," he said.

"It's warming up quite a bit here," said a Midwestern utility buyer. The local forecast is stormy for the next week or so, he said, but the rain isn't going to keep the heat away. The Independence Hub restart will become more important to the market in coming days as production continues to ramp up, he said, but he thought it was a factor in Wednesday's softness "only to a small degree."

The buyer agreed with the producer that it was about time for prices to fall primarily because of the dizzying heights they had reached. Just look at how much of the market is trading above $12 these days, he pointed out. Also, the first tropical storm of the storm "fizzled quickly and there's nothing developing on the horizon," he added.

It's been a quiet market to the buyer for a while, but the heat arriving in the Midwest may stir things up, he said. He was sure that his area will have appreciable air conditioning load for quite a while.

A utility buyer in the South said his city was experiencing "a new warmth" in the sense that it's had a cooler than normal spring until recently. Local temperatures just started getting into the 90s during the past week for the first time this year, he said, adding that as a result the utility's gas load is way down but electric distribution throughput is way up.

"Our storage injections are very predictable at this time of year," the buyer continued. He hasn't needed to buy any spot gas recently because June baseload and summer term supplies are enough to meet all needs, he said.

Because July futures began Wednesday softer but then rebounded strongly, the buyer said that likely means a return to higher cash prices Thursday.

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