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Cash Crawls Higher, But Consultant Sees $1 Handle Summer Gas

Cash quotes overall inched higher by about a penny, but flat to lower quotes at a few spots in the Great Lakes and Northeast were offset by firm Rockies prices and restriction-derived gains of about a nickel in California. The Energy Information Administration (EIA) reported a build of 30 Bcf, about what the market was looking for. Prices slumped initially but managed to climb back into the plus column before closing. At the end of the day June futures were 2.2 cents higher at $2.487 and July gained 1.9 cents to $2.569. June crude oil rose 27 cents to $97.08/bbl.

Gas buyers in the Great Lakes region reported slightly higher usage. "Up until now our customers are showing more usage, but with temperatures going up it may balance that out," said a Great Lakes buyer.

He added that nighttime temperatures had recently been in the 30s, but next week "we should see highs in the 70s and lows in the 50s. We also elected to buy only half of our gas at May index, so any additional buying will come from now higher spot market prices. Prices are still only in the $2s so that's still relatively low. Our customers should be able to look at their bills from last year and realize energy savings."

AccuWeather.com forecast that the high for central Michigan would reach 74 on Friday before slipping to 70 on Saturday and bouncing back to 75 on Monday. The normal high this time of year is 66.

Prices in the Midwest waffled no more than two cents on either side of unchanged. Michcon was quoted flat and Consumers rose by a few pennies. Chicago Citygate was also unchanged. At points farther west prices also showed no clear trend. Northern Natural at Ventura fell about two cents and deliveries to Alliance were flat.

Western points and those on the delivery route to California rose. CIG, Opal, Northwest Pipeline Wyoming, Kern River and Malin each advanced a couple of pennies.

California prices posted the strongest gains of the day as flows from both the north and south were restricted. "We are not seeing any increase in loads, but there are reductions on the Redwood Pipeline, the main line from the north where we get our gas from Alberta and the Rockies," said a northern California buyer.

Pacific Gas and Electric reported on its Pipe Ranger website that Redwood Line 401 would be undergoing maintenance from May 10 - 13. It also said the Kern River Station would be limited to 350 MMcf/d until further notice.

California was facing restrictions at both ends of the state. "There is a transmission outage down there that is causing some problems. Its on the [Questar] Southern Trails Path and along with the Redwood that could be impacting SoCal [prices] too," the buyer said.

Deliveries Friday at SoCal Citygate, SoCal Border, El Paso S Mainline and PG&E Citygate each tacked on about a nickel.

Natural gas futures advanced, but it was a struggle. "I think the market is pushed to its limits. Traders have pushed out as many shorts as they can, and the rally is starting to stall," said a New York floor trader.

He added that in his view much of the recent move has been technical short covering. "My thought is that the market will start to fail again against these levels. I think others will see the market stall here and it will get pressure to the downside."

The trader envisioned the market working towards $2 but periodically finding support at various levels. "I don't see anything that prompts the market to rally. The market is looking for a favorable fundamental event on the horizon which has yet to materialize."

Traders for the moment were willing to count the day's Energy Information Administration (EIA) inventory report as favorable. Once the number was released prices rose, but quickly surrendered. Just 15 minutes after the figure was released, June was trading at $2.422, down 4.3 cents from Wednesday's settlement. At the closing bell, June futures had rallied 8.0 cents off the day's low to settle 2.2 cents higher.

It was the second week in a row where an on-target EIA inventory report resulted in a positive futures settlement. Last week traders were looking for a build of about 30 Bcf and the actual figure for the week ended April 27 came in pretty much right on target at 28 Bcf. With no change in market expectations, the new information added little to the bullish or bearish case. June futures, however, managed a stout 8.7-cent advance to $2.340. The fundamental driver, however, may have been that the 28 Bcf was well short of historical averages. The five-year average was 79 Bcf, and last year's build was 60 Bcf.

A similar situation existed this week going into the 10:30 a.m. EDT report of storage figures for the week ended May 4. The expected build was also about 30 Bcf, but it fell well short of historical averages. Last year 71 Bcf was injected, and the five-year average stands at a stout 84 Bcf.

Expectations of market players were fairly close. Drew Wozniak of United-ICAP was looking for an increase of 36 Bcf, and Tim Evans of Citi Futures Perspective calculated an injection of 25 Bcf. Industry consultant Bentek Energy, utilizing its North American flow model, predicted a build of 32 Bcf.

Longer term natural gas storage faces serious issues, according to a recent report by Bentek (see related story). It said "Substantial production curtailments will be required in the upcoming months as U.S. natural gas storage inventories approach operational capacity. The U.S. natural gas market faces a summer of extremes after higher-than-average winter temperatures propelled the March-ending natural gas storage inventory to a five-year high of 2,479 Bcf, 60% above the five-year average."

By the end of the summer Bentek is looking for significant shut-ins and production curtailments along with spot prices at least 50 cents lower than present. It said it "projects $1.00-handle Henry Hub natural gas cash prices this fall as storage approaches operational capacity." While substantial year-on-year demand growth may decrease the rate of injections this summer, Bentek said it expects U.S. storage fields to remain near full. As a result, it anticipates dry gas production to undergo substantial curtailments by the end of summer.

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