Cash market quotes bounded higher Tuesday even though traders saw little in the way of increased loads or fundamental changes in the market. Average gains at all points were more than 16 cents and Northeast points were the softest but they advanced over a dime.
A strong performance by June futures the day before was thought to be instrumental, and continuing futures gains Tuesday aided and abetted the day's strong move. At the close of futures trading June had gained 8.6 cents to $2.371 and July had risen 7.4 cents to $2.468. June crude oil added $1.29 to $106.16/bbl.
A Midcontinent trader thought the rise in the physical market was "following the futures market. That is all it is. People are buying the gas, sticking it in the ground and then implement financial storage [hedging]. That is what is going on."
He added that "loads have been coming off a little bit, and we don't quite know what is going on. Nymex chooses to rally. My explanation is the Nymex tail is wagging the cash market dog."
Quotes on ANR SW and NGPL Midcontinent jumped nearly 20 cents apiece, and deliveries to Demarcation were just north of 15 cents higher.
On the West Coast prices firmed as next-day electric power rose. Deliveries to PG&E Citygate and Malin each added about 15 cents. SoCal Border was about a dime higher, and SoCal Citygate gained 8 cents.
On the power market side, IntercontinentalExchange reported that next-day SP-15 day-ahead locational marginal prices jumped $2.30 to $28.20/MWh, and Palo Verde next-day peak power added 93 cents to $21.68.
Loads in the Upper Midwest did not increase, and marketers were somewhat puzzled by the day's advance. "We aren't seeing any increased requirements from our customers," said a Great Lakes buyer.
He did say that warmer weather was expected for Wednesday, but 'I don't think we'll get too much into air-conditioning load. It's supposed to reach just 80," he said.
The buyer remarked that he had baseloaded less than his normal quantities since prices had been falling, but "for several months the baseload [price] has been higher than the cash market for the rest of the month. We decided to cut it back. The month is early and we'll see what happens going forward."
Quotes on Alliance and Chicago Citygate each jumped nearly 20 cents, while Consumers rose just more than a dime and Michcon added nearly 15 cents.
Temperatures were forecast to warm across the Midwest. AccuWeather.com called for the high in Chicago Tuesday of 71 to rise to 82 on Wednesday and 85 on Thursday before sliding to 81 on Friday. The normal high in Chicago at this time of year is 65.
Futures traders saw a bout of short-covering and traders defending $2. "It looked to me like short-covering and a little prompting from the trade to move the market away from $2. However, I would be looking for a spot to sell the market. I don't think it does much more," a New York floor trader said.
"There are a couple of technical levels the market broke through, but we could very well be at the top of the covering with the market poised to work its way back down."
Market technicians are pondering whether recent lows in the $1.90 area constitute a market bottom. "The big picture question is whether the $1.902 low represents a decisive break below our $1.964 long term wave count target," said Walter Zimmermann, vice president at United-ICAP. He added that the low monthly close so far has been $2.126, "So we cannot rule out the case for $1.902 as a major low. What the bulls need to buttress their case is a decisive close above the $5.180 level. That level appears well out of reach for the foreseeable future."
Zimmermann said his "most bullish case for natgas is that the rebound from the $1.902 low peaks out by the $2.900 area and then the longer-term down trend resumes. A reversal lower by the $2.900 area would keep the bearish case intact for an eventual decline to the $1.080 area."
Other analysts see it as too early to call an end to the downtrend. "It is still too early to predict a bottom, but activity such as ignoring bad news is often an early sign of a major bear market coming to an end," said Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm.
DeVooght is looking to do some selling on any rally. "On a trade basis we will continue to hold current positions and view any significant rally from current levels as an opportunity to do some forward sales in the summer strip. At this time and at these price levels, we are not excited about establishing new hedges here."
For end-users and trading accounts DeVooght recommends standing aside, but for producers and other physical market longs he has purchased October $2.50 puts at a premium of 25-27 cents in order to cover the summer strip. He plans to use a stack-and-liquidate strategy to manage the position.
As promising as Monday's and Tuesday's advances were, forecasters suggest that longer-term weather patterns may not be of much help. Commodity Weather Group of Bethesda, MD, in its morning 11- to 15-day outlook shows a broad ridge of below-normal temperatures from North Texas to Wisconsin to New Jersey. Above-normal temperatures are expected for California, the Pacific Northwest and the Great Basin. "For the 11-15 day, the models continue to oscillate on specific details, but they are in good agreement on a warm West and seasonal-to-cool Central/Eastern/Southern pattern again. While this enhances late-season overnight heating demand in the North, it also squelches early season cooling demand in the South," said Matt Rogers, president of the firm.
"[Monday] night's European weeklies suggested that the cool pattern in the eastern two-thirds of the U.S. continues for another week beyond the current 11-15 day. Only at the very end of May (final week) do we see another chance for hotter-than-normal temperatures on the East Coast (with a cooler West and Central at that point). [Monday's] CFS [Climate Forecast System] model also hinted at an end-of-May reversal in the cool pattern, too. But even if true, that would not show up on our current 11-15 day maps until over a week away yet."
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