Cash quotes Wednesday latched on to strength derived from exuberant futures bulls and settled a dime higher on average. California points were strong, but the gains were noticed at nearly all trading points. Futures traders see not only covering of existing short positions but also new buying. At the close of futures trading June had added another 7.2 cents to settle at $2.465 after flirting with $2.50. July gained 7.5 cents to $2.550 and June crude oil struggled, settling at $96.81/bbl, down 20 cents.
Buyers off Florida Gas Transmission (FGT) Zone 3 saw prices at hefty premiums to points further west. "There is now a 25-30 cent spread between Zones 1 and 2 and Zone 3. It's ridiculous," said a Florida gas buyer.
He added that during a recent FGT alert "you had to add on another 70 to 80 cents to get to the FGT market zone. We are bringing gas in on Transco and from our own storage facility," he said. "It looks like the cash market followed the gains in the futures. We hedge our requirements, and I am suggesting to the buyers under our umbrella that prices are at a low and the market is only going to turn around."
Deliveries on FGT Zone 3 gained almost a nickel but points farther west were even stronger. Trunkline E LA, Tennessee 500 L and Henry all added about a dime.
California points were strong capitalizing on not only the strength in the futures but also supportive next-day power prices at nearby delivery points. IntercontinentalExchange reported that next-day peak power at COB (California Oregon Border) jumped a whopping $5.60 to $22.58m and power at Palo Verde added $1.00 to $27.07.
Quotes at SoCal Border were 20 cents higher and SoCal Citygate experienced gains of just a couple of pennies less. Gas into PG&E Citygates was seen nearly 15 cents higher.
Texas points firmed as well. Carthage, Waha, Katy and NGPL S TX were each nearly a dime higher.
Futures prices advanced on the day, but late-day weakness tempered the gains somewhat. "This market has been higher on an ongoing basis so you would expect guys to take something out of the market," said a New York floor trader.
The trader said that he didn't think the day's rise was all just short covering. "I think there is some new buying coming into the market. I think people are of the view that we saw the lows at under $2. I think market resistance is at $2.50 and if we get above there, $2.525 and $2.60 above that."
Those targets may not be that much of a challenge as Thursday's Energy Information Administration (EIA) inventory report is expected to show increases far less than the historical averages. Last year 71 Bcf was injected and the five-year average is for an 84 Bcf build. United-ICAP forecasts an injection of 36 Bcf and Citi Futures Perspective analyst Tim Evans is looking for a 25 Bcf increase. Industry consultant Bentek Energy expects a 32 Bcf build.
Also aiding a bullish outlook are forecasts calling for above-normal temperatures for much of the country. WSI Corp. of Andover, MA, in its 11-15 day outlook, forecasts warmth across a broad swath of the country from Ohio to Colorado to Minnesota. "With the exception of the West Coast and the southeastern U.S., anomalies between 3-8 degrees above normal are forecast over most of the country. The West Coast and southeastern U.S. will see near-normal readings."
It added that this was little changed from Tuesday's outlook and said risks to the forecast include "temperatures...[trending] warmer over most of the country than currently forecast as the medium-range models all advertise the NAO [North Atlantic Oscillation] will transition to a neutral-to-positive phase in late May. The PNA [Pacific North American pattern] is forecast to transition to a negative phase."
June futures traded as high as $2.461 Tuesday, the highest since early March, but technical analysts aren't ready to sign on to any long-term advance just yet. Nonetheless, they see prices in the short term moving approximately another 15-30 cents higher. In a bearish scenario "a five-wave advance is coming to an end. Natgas will not be able to get above $2.572-2.579 (1=5 and long-standing trend line resistance)," said Brian LaRose, analyst with United-ICAP. "[In the] bullish case, an ABC is unfolding from $1.902. Natgas is headed to $2.770 (a=c). With the intraday RSI already nearing overbought and showing bearish divergence, $2.770 may be out of reach. Bulls, proceed cautiously."
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