The cash market had plenty of help in achieving increases at most locations Wednesday. There was the previous day's rally by August futures, rising temperatures in several regions boosting power generation demand, and the lingering potential for a tropical storm approaching the offshore production area by early next week.
A few flat to a little more than a nickel lower points were the exceptions to overall upticks ranging from a little more than a nickel to about 20 cents.
Thursday's physical pricing will have a bit less support on which to rely. Nymex's August natural contract gave back 7.7 cents of its prior-day rise of 8 cents, and development chances were lowered slightly for the tropical wave moving toward the Bahamas.
Although satellite images indicated Wednesday that shower activity associated with the tropical wave known as 97L had become less organized, as of that morning the National Hurricane Center (NHC) said it still considered chances of the system becoming a tropical cyclone with the succeeding 48 hours high at 60%. However, on Wednesday afternoon the likelihood had been downgraded slightly to "medium" (50%). NHC said unfavorable high winds and effects of the high terrain of Hispaniola (Haiti and Dominican Republic) had disrupted 97L's structure.
The wave was beginning to approach the southern Bahamas as it moved westward away from Hispaniola at 10-15 mph, NHC said; it was expected to reach the island group Thursday.
Most forecaster models project the system to go ashore in southern Florida before the weekend arrives and emerge into the eastern Gulf of Mexico possibly as early as late Saturday. It was difficult to say how much 97L may intensify before reaching Florida, and whether the anticipated overland trek will sap its strength by enough to make it a negligible threat to offshore production.
Shell Oil has initiated preliminary precautions, saying Wednesday it has begun evacuating personnel not essential to its eastern production and drilling operations in the Gulf of Mexico. "We will continue to monitor the situation closely and respond to further developments, including impacts to our drilling and production operations," according to a Shell statement.
An Overage Alert Day for market-area customers by Florida Gas Transmission started its third week of being in effect Wednesday, with the tolerance for negative daily imbalances remaining at 20%. After spiking in the week's first two trading days, the Florida citygate fell a few cents but still remained well above all other price averages.
A heat wave is continuing to set up residence in the South, with some locations due to see highs in the upper 90s Thursday. The West Coast and much of Canada will remain fairly cool for the most part, but after a mild period the Rockies market is starting to heat up again, with Denver expected to reach the low 90s. The desert Southwest remains torrid, of course, although Phoenix's forecast high of the mid 100s Thursday will represent a slight moderation from peaks closer to 110 earlier in the week.
The Northeast and parts of the Midwest are about to start breaking a sweat again, with many locations due to hit either side of 90.
It's definitely been getting hotter since the week began, a Midwest utility buyer said, and predicted rain overnight Wednesday probably would raise local humidity levels considerably and consequently his company's air conditioning load. There's no cooldown in sight through next week, he said, but area temperatures are probably unlikely to peak above the low 90s.
The utility has seen an increase in generation demand recently, the buyer added, but he didn't think it had activated any gas-fired peaking units yet -- "yet" being the key word there.
He reported already having done some August baseload business, saying so far all of his purchases have been at index flat to plus or minus a quarter-cent, depending on the point.
Credit Suisse analyst Teri Viswanath expects a 49 Bcf storage injection to be reported for the week ending July 16. "We estimate that total working gas in storage as of last week stood at 2,889 Bcf, or 53 Bcf below last year's level," Viswanath said. "Given warmer temperatures on the horizon, we expect the storage deficit to widen to closer to [minus] 100 Bcf by the end of the month."
She added that while the widening deficit might appear constructive for prices, she sees the year-on-year storage comparison as "less impressive when viewed against the backdrop of the season-to-date weather. This year the industry has witnessed a 23% rise in cumulative cooling degree days and yet has still managed to refill storage within 3% of last year's levels. So the question remains: what happens to injections when the summer heat begins to fade?"
Following the big injection of 78 Bcf during the week ending July 9, Tim Evans of Citi Futures Perspective also looks for a big drop in Thursday's report, placing his estimate at 48 Bcf. Evans anticipates further declines to 41 Bcf and 40 Bcf for the weeks ending July 23 and July 30, respectively.
©Copyright 2010 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.