The cash market gained on average 13 cents Wednesday, aided by a strong futures market and stout gains posted at Western and Gulf points. Alleviation of restrictions prompted a 50 cent-plus jump at a key Marcellus point. At the close of futures trading June had added 11.8 cents to $2.618 and July had risen by 11.9 cents to $2.687. June crude oil continued its descent, losing $1.17 to $92.81/bbl.
"The cash market is following the ups and downs of the futures," said an Arizona trader. "The market is truly trending upwards and once the summer sets in we might see a little weakness off and on, but it's probably going to be trending up to $3 on the cash side."
He added that there was some impact from California markets, and "if there is high power demand it tends to pull up Arizona prices at Palo Verde and Four Corners. Day ahead power at Palo Verde is trading around $30 and we started the month at $21 to $22 and that is the equivalent of almost three heat rates."
IntercontinentalExchange reported that next-day peak power at Palo Verde settled at $29.32/MWh, up 54 cents, and peak deliveries to Four Corners was unchanged at $29.63/MWh.
PG&E forecast a negative imbalance Wednesday of 132 MMcf/d and a negative imbalance of 121 MMcf/d for Thursday. Maintenance on the interconnecting Southern Trails pipeline has been completed, but PG&E reported flows from Southern Trails of only 7 MMcf/d. Questar notes capacity of Southern Trails at 80 MMcf/d.
Quotes at California market points and those on the delivery routes from Rocky Mountain basins all gained about a dime, as did deliveries to CIG and both Opal and Malin.
Maintenance outages still plagued deliveries on Florida Gas Transmission Zone 3, but indications were that the work may be finished soon. "It's just rumors, but maybe next week it will be over," said a Florida utility buyer. He pointed out that prices at market points to the west were about 25 cents lower, and when the maintenance is over "gas prices will just plummet."
The buyer said he was carefully eyeing recent price advances. "About 20% of our customers are hedging against price increases. If you like gas at $2.00, you will love it at $1.50, and we have some term deals we have put in place. I don't think prices are going to continue to go up. They will come back off. That's what we have been hearing."
Florida and Gulf prices strengthened. Florida Gas Transmission Zone 3 gained a dime, but larger gains were observed at points further west. ANR SE, Tennessee 500 L, and Columbia Gulf Mainline were all higher by around 12 cents, and Henry and Tetco E LA were up by more than a dime as well.
The day's greatest gains were recorded by Tennessee Gas Pipeline Zone 4 Marcellus with a jump of more than 50 cents. According to an eastern marketer, restrictions at the Rivervale, NJ, interconnect between Transco and Tennessee were scheduled to be lifted on Thursday. The gain, however, was only enough to bring gas previously unable to move due to the restrictions just above the $2 mark.
Futures traders and marketers alike will be taking a close look at Thursday's inventory report for clues as to whether the plump storage surplus will show signs of moderating. All indications are that storage inventories should be trimmed. Last year at this time 86 Bcf was injected and the five-year average stands at 91 Bcf. A Reuters poll of 26 analysts indicated an average 55 Bcf increase, and IAF Advisors of Houston is looking for an increase of 57 Bcf. Bentek Energy, utilizing its North American flow model, calculates a 57 Bcf build.
Weather forecasts show a supportive dynamic capable of supporting further gains. Commodity Weather Group (CWG) in its six- to 10-day outlook forecasts a broad northeast to southwest trending ridge of above normal temperatures as far north as Maine and Minnesota and extending to Southern California. Only South Texas, the Southeast, Northern California and the Pacific Northwest are expected to be normal.
"We did introduce some low 90s to St. Louis [Wednesday] late in the six-10 day and early in the 11-15 [day] periods. We also inched up heat a bit more in the rest of the Midwest into the Mid-Atlantic (mid-to-upper 80s) for a surge of warming in the latter part of the six-10 into the early 11-15 day (which is of course right around the three-day holiday weekend)," said CWG President Matt Rogers. "On the flip side, the models are showing some agreement to cool the pattern for these areas by mid to late 11-15 now. The South continues to miss any major heat with mainly seasonal to marginally above normal temperatures. The West is also variable with only occasional warm-to-hot chances that are focused more on the interior versus at the coast."
Tim Evans of Citi Futures Perspective forecasts this week's storage build at 67 Bcf, below last year and the five-year averages, but he sees the year-on-five-year surplus easing to 740 Bcf by June 4 from its present 803 Bcf.
"The larger question that the market will have to continually assess in the week and months to come is whether this progress in drawing down the surplus is fast enough to assure that storage will fit within available capacity," said Evans. "Our expectation is that storage will top out at about the 4,000 Bcf level this fall, fitting within capacity, but still implying a new record high that won't necessarily support higher prices."
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