Friday's trading found cash prices overall flat with Thursday, but points throughout the Rockies and as far south as the Permian Basin rebounded from an outage reported east of Bakersfield, CA. Midcontinent points rose, but Gulf Coast locations weakened. At the close of futures trading June had fallen 6.1 cents to $2.279 and July had slipped 5.9 cents to $2.371. June crude tumbled $4.05 to $98.49 following a weak employment report and hints of hedge fund liquidation.
Indications were that pipeline facilities affected by a force majeure related to a gas leak earlier this week would return to service by 8 p.m. Mountain time on Friday, according to a Mojave pipeline bulletin board posting.
That was enough to reverberate through markets Friday with points from Wyoming to West Texas on the rebound.
Rockies points scored up to double-digit gains. Cheyenne Hub was up nearly a nickel, and CIG Mainline gained close to a dime. Gas at Opal rose a dime and Malin added slightly less than a nickel.
More southern delivery points into California gained as well. El Paso Permian added about 7 cents, and gas out of the San Juan Basin rose close to a dime.
Northern California points were relatively unscathed by the outage but did manage to finish in the plus column. "The leak primarily affected SoCal," said a northern California trader. "Heating load has been a little higher the last few days, but that should dissipate over the weekend, but the electrical load will kick up. Going forward there will be a very small amount of heating load."
PG&E forecast customer balances would be slightly positive over the weekend with Monday turning negative. For Saturday and Sunday supply was forecast to exceed demand by 119 Bcf, but Monday was expected to put balances negative by 128 MMcf. Monday gas on PG&E rose by a couple of pennies.
Midcontinent prices firmed. Quotes on ANR SW were flat, but gas on Panhandle added close to 3 cents. NGPL Midcontinent rose about two cents.
Gulf Coast prices proved to be the day's laggards. Columbia Gulf Mainline was unchanged, but gas delivered on ANR SE fell by close to a nickel. Henry was flat, but deliveries to Tetco E LA fell about a nickel. Gas on Tennessee 500 L fell about 4 cents.
Futures traders are not convinced the market can move higher. "Natural gas isn't going anywhere unless Centaurus covers all of their shorts and sends the market spinning back to $3, and everyone else has to buy on short-covering," a California risk manager posited.
"Traders slammed the crude oil for $4 and it looks to me as though they [Centaurus and others] were long the crude oil and short the natural gas, but natural gas went down six cents."
On Thursday it was reported that former Enron Corp. energy trader John Arnold is closing down his flagship Centaurus Energy Master Hedge Fund (see Daily GPI, May 3).
From a risk perspective, the California manager doesn't see a lot of concern from his end-users that higher prices pose a threat. "I don't think they are worried. None of them have done anything [hedging]. They have gotten hammered on their long hedges recently.
"I think they have layered in the idea that they don't have to do anything up to $4. I'd like to suggest that bullishness is OK in natural gas, but it is a hard sell," the risk manager said.
Analysts are in a "show me" mood as any further price gains seem predicated on lower production. The "strong price advance that carried into [last] Tuesday's session appears to be stalling out as nearby futures have been unable to punch through expected resistance at the $2.39 area," said Jim Ritterbusch of Ritterbusch and Associates.
"The quick price pop of almost 20% has discounted some significant production cuts that could easily fall short of most expectations. From here, the market will be demanding more evidence of output curtailments from sources other than the weekly gas rig counts. Additional sequential declines in monthly production levels will be needed while more signs of price-influenced power demand increases will also need to be indicated."
Technical traders versed in the nuances of Elliott Wave and retracement analysis see a couple of near-term possibilities for natural gas prices but also view the $2.39 area as an important near-term threshold. "[E]ither $2.236 [Wednesday's low] completed a minor correction down from $2.385 or an ABC [pattern] is unfolding," said Brian LaRose, analyst with United-ICAP. "If $2.236 marked the end of a corrective retreat, natgas should have little trouble getting above $2.385. Clear this level and natgas will have room up to $2.521-2.579 next. Fail to get above $2.385 and a test of $2.231 (a=c), even $2.139 (1.618 a=c) will be possible first."
Students of the economy were disappointed with the Friday release of April employment figures by the Labor Department. Although natural gas prices have shown little correlation with the improving employment situation, high-energy industries such as autos, steel and chemicals are likely to benefit from improved employment and provide a foundation for higher natural gas demand. Non-farm payrolls grew by 115,000 in April, well short of economists' expectations of upwards of 160,000. The unemployment rate eased slightly to 8.1% from March's 8.2%.
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