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Cash Strong Again, But Futures Soften

The cash market overall on average tallied a four cent gain Thursday as the market piggy-backed off the screen's nearly 12 cent advance Wednesday and points in the East were expected to see well above normal temperatures. Most cash points proved strong with the exception of a handful of spots in the Northeast. The Energy Information Administration (EIA) reported a build of 61 Bcf, a bit more than the market was expecting and futures eased. At the close of futures trading June had fallen 2.4 cents to $2.594 and July fell 1.4 cents to $2.673. June crude oil continued lower falling 25 cents to $92.56/bbl.

In spite of the recent large moves in the futures markets, cash traders and those following basis markets saw limited activity. "The past few days have been extremely slow basis wise," said an eastern marketer.

"I don't know if some people are just sitting back seeing where this move takes us, or maybe some people had put on positions earlier and were just hanging back seeing where this thing goes.

"The Algonquin [June basis] has gotten a little stronger and its about 36 cents over now, and Transco Zone 6 is about 25 cents," the marketer added. "With the way the screen has been trading and with storage the way it is it seems as though there has been a lot more fixed price activity in the back dated term contracts. I was thinking that there might be more interest in the back months because of issues like LNG, drilling, and exports and people would start trading their basis, but it just hasn't been the case."

Friday temperatures across the East and Midwest were expected to be well above normal. AccuWeather.com forecast a high Friday in Boston of 70 and a high Saturday of 74. The normal high this time of year is 66. New York City's high Friday of 73 was forecast to jump to 80 by Saturday, well above the seasonal average of 71.

Quotes on Tetco M-3 and Transco Zone 6 NY each rose by more than a nickel.

At Midwest points high temperatures were expected to be well above normal as well. According to AccuWeather.com the high in Chicago Friday was forecast to reach 81 and Saturday was expected to be up to 86. The normal high in Chicago this time of year is 70. In St. Louis the high Friday was anticipated to be 88 before rising to 89 Saturday. The normal high in St.Louis is 76.

Chicago Citygate deliveries rose a couple of pennies and gas on Consumers was flat. Parcels at Michcon were higher by about a penny.

Texas points posted hefty gains. Carthage gas and deliveries to Waha both rose by about a nickel and quotes at Katy added a couple of pennies less.

The dominant price driver in the futures arena was the weekly storage report. The 61 Bcf build reported by the EIA proved to be a bit more than the bulls could handle. Expectations had been closer to a upper 50s Bcf build.

Traders took the decline in stride. "This was really nothing unexpected. We've been up 70 cents or so in the last three weeks," said a New York floor trader.

A Midwest trader said "the number will certainly take some steam out of the strong price advance of the past month, [but] it does not look like a game changer in our opinion. In other words, we don't view this single supply figure as capable of placing a price top in this short term up trend."

Tim Evans, market analyst with Citi Futures Perspective said "The build was still less than the 91 Bcf five-year average benchmark and thus constructive, but the major issue for the market in the months ahead is not simply progress in reducing the storage surplus, but whether the rate of progress is sufficient to head off storage capacity issues. The price action will give the market's rating on whether last week's progress was sufficient, or a disappointment."

Expectations, however, were well below historical averages. Last year 86 Bcf was injected and the five-year average stood at 91 Bcf.

Energy Metro Desk (EMD) saw shoulder-season heating requirements as the culprit. "For last week, and according to the National Weather Service, US average gas-weighted home heating degree days (HDD) totaled 31 HDDs, a 26 HDD decrease from the previous week, while population-weighted cooling degree days (CDD) averaged 25 CDDs, or a 1 CDD increase week-on-week. On a weekly basis, the current storage week finished 31% warmer than the prior-year level and 40% warmer than normal. Temperatures were above normal in the South Atlantic, the Southeast, and the western half of the US," said John Sodergreen, the editor.

Inventories now stand at a healthy 2,667 Bcf, a lofty 773 Bcf ahead of the five-year average, and this week's estimates looked to shave that difference. A Reuters survey of 26 analysts revealed a sample mean of 55 Bcf with a range of 44 Bcf to 65 Bcf. Kyle Cooper of IAF Advisors expects an increase of 57 Bcf and industry consultant Bentek Energy forecasts a build of 57 Bcf as well. Last year 86 Bcf was injected and the five-year average stands at 91 Bcf.

EMD points out that according to Bentek "U.S. storage inventories have set five-year highs every week during 2012, reaching the largest gap at the end of the withdrawal season (March 30) at 809 Bcf above the previous record. Since then, storage injections have been weaker than last year due to strong demand during the shoulder months of April and May. In only six weeks, storage inventories have reduced the gap to the five-year max by 228 Bcf or 32 Bcf average per week. The East and Producing regions are leading these reductions with 74 Bcf and 115 Bcf, while the West has reduced the difference to the previous five-year high by 24 Bcf."

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