Physical gas for weekend and Monday delivery was mostly flat in Friday's trading with modest gains posted in the Rockies and Midcontinent. However, the real story could be found in the northeast, where large drops were recoreded for a second straight trading day.
Traders see a bullish tone to the market, but admit that near term weather prospects by themselves are not likely to be very supportive. At the close of futures trading July had added 4.3 cents to $2.625 and August had gained 5.0 cents to $2.668. August crude oil gained $1.56 to $79.76/bbl.
Physical traders often utilize the markets to take advantage of changes in the weather. "The June swing swap for June Algonquin is $3.26 offered and $3.12 bid. You could most likely sell $3.19s," said an East Coast marketer.
Should the market decline because of more mild weather or other factors on Algonquin, it would be possible to buy back the contract at a lower price. "If it ticks down on Monday you could buy it back. It's a speculative position, but it could be done. People do that all the time. There are some dollars involved, and if you are wrong, you are wrong," he said.
Such a trade would differ from a sale, for example, on Nymex in that it would be more focused on specific conditions unique in this case to the Algonquin market. "It's a little like Nymex, but it's trading based on the physical demand and the physical movement of gas for the month," the marketer said.
Forecaster Wunderground.com predicted that the high in Boston will drop to 73 degrees on Monday and 70 on Tuesday.
The National Weather Service in southeast Massachusetts said Friday that "a cold front will move through the region tonight and early Saturday followed by cooler weather this weekend but still above normal temperatures. Low pressure and another front will approach by early next week...which will slowly move across through middle week bringing cooler temperatures and an increased threat of showers."
Weekend and Monday gas on Algonquin tumbled almost a dollar and deliveries to Iroquois Waddington dropped by almost 30 cents. Quotes on Tennessee Zone 6 200 L dropped more than 70 cents.
The change in weather had less impact at locations further south. Deliveries to Dominion were flat but parcels into Transco Zone 6 New York fell almost a half dollar. Gas at Tetco M-3 skidded about a nickel.
Marketers in the Rocky Mountains and Midcontinent are finding thin margins. "We are trying to move gas from CIG to Opal or Panhandle," said a Denver trader marketer. "The CIG Opal spread is into about 4 1/2 cents, and now you have Panhandle trading above Opal which is not where it was in April."
"If we move gas from CIG to Panhandle we have about 6 cents to cover and we are right at break even. We are fighting for a couple of pennies here and there for gas. The CIG Opal spread is just as difficult. On June 21 CIG was $2.40 and Opal $2.41, and the day before that it was 3 cents wide. It's gotten progressively tighter through the month," he said.
Monday gas at Opal was flat and deliveries to CIG were up a couple of cents. Deliveries to the Cheyenne Hub added almost a nickel.
In the Midcontinent prices rose a couple of pennies. Quotes on Panhandle Eastern were about 2 cents higher, and deliveries to ANR SW and NGPL Midcontinent Pool rose by almost a nickel.
Short term futures traders are optimistic. "I think we are set up for a little bit of a spike in the next week and a half. I am not convinced that we are going much lower from here," said a New York floor trader. "I think we will squeeze out a few more shorts."
"I think the market will feed on itself next week and trade up to $2.85. There is options expiration on Tuesday and futures on Wednesday. I think we'll see some options activity at $2.75. There is more open interest at $2.50, but I don't think we'll get there."
Near-term forecasts show concentrated heat in the Midwest and southern plains. MDA EarthSat in its six- to 10-day forecast shows a large ridge of above-normal temperatures extending from Idaho to Louisiana and Indiana to Arizona. East and West Coasts are forecast to be normal. "Changes were to the warm side in the Midwest at mid-period and East late, while the Texas heat was weakened. With the cool trough in the East weakening faster, a stronger surge of warmth is now expected to return to the Midwest as warm ridging expands overhead," the forecaster said.
"While peaks should fall short of the recent heat event, another round of 90 degree-plus temps is likely near Chicago. The Mid-Atlantic also warmed late, but the unsettled nature of the pattern should limit extremes. East Texas temps were shaved some given the potential for a tropical system over the western Gulf of Mexico early."
Analysts suggest that the temperature outlook is not so likely to give the bulls the help they would like. "[T]he market is swinging attention back toward short-term temperature updates that are looking less supportive in our view. As a result, further price increases from here should prove arduous in the absence of supply side news and limited impetus from the charts where fresh highs are almost 10 cents above [Thursday's] settlement," said Jim Ritterbusch of Ritterbusch and Associates. "The market appears complacent regarding the production factor and will demand more concrete evidence of output slippage before providing it with a bullish check mark."
Ritterbusch is "maintaining a neutral trading posture in this market on the expectation that the large percentage price swings seen in both directions during the past two months will be sustained as this summer proceeds. We have staked out our expected price parameters as existing between about the $2.00 and 2.65 areas, and we will generally be looking to approach the market off of these parameters. The market's response to [Thursday's] storage data further underscored a firm pricing undertone that continues to leave open the possibility of another round of fresh highs that could keep long-standing short position holders on the defensive."
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