Likely keying off the natural gas screen's failure to break above $3 on Wednesday, cash points across the country came off mostly by a nickel to a dime on Thursday except for a few spots in the Northeast, which chose their own path.Natural gas futures bulls were dealt a blow Thursday morning after it was reported that a higher-than-expected 57 Bcf storage injection was recorded for the week ending June. 22. While the build was much smaller than historical comparisons, it was still bearish enough when compared to industry expectations to push futures lower on Thursday. The August contract closed the regular session at $2.722, down 7.6 cents.
Breaking from the day's mold of moderate drops were a couple of cash points in the Northeast, Algonquin Citygate dropped more than 50 cents while Tennessee Zone 5 200 Line and Tennessee Zone 6 200 Line, which are plagued with abundant Marcellus Shale gas supplies, came off by more than 50 cents and 60 cents, respectively. On the other end of the spectrum, Transco Zone 6 NY appeared to be ramping up for Friday's expected heat wave as the location's average gas price increased nearly 15 cents Thursday.
Elsewhere, trading action was fairly orderly. In the West, Southern California Border dropped a nickel while SoCal Citygate was flat. PG&E Citygate made another foray above $3 on Thursday but ended up averaging just shy of that mark, dropping a little more than a nickel.
"While it appears there was a little pullback on prices today, things have been pretty strong recently," said a West Coast utility buyer. "PG&E Citygate moved over $3 on Wednesday and again on Thursday. Temperatures tell the tale. Looks like things will be warmer in the West through at least July 5 or so before settling down into normal territory in the longer-term forecast."
The utility buyer chalked up Thursday's weakness across the country to the cash market's pursuit of the screen. "We're following Nymex for sure," he added. "It rallied Tuesday, but then gave back a little on Wednesday and some more on Thursday."
The buyer added that Ruby Pipeline continues to be a sticking point of sorts. "It looks like the market is unwinding the Ruby transport," he said. "It's just not meeting variable cost to flow, so everyone appears to be unwinding and selling back into the Rockies."
The buyer said July bidweek trading was unremarkable. "Nothing unusual this month," he said. "Looks like all of the spreads are really mirroring what is happening in the cash market."
While much of the country is bracing for the arrival of the second real heat wave of the still young summer, which is expected to hit Friday into the weekend, the six- to 10-day forecast covering July 4-8 shows a bit of break for the immediate East and West coast states, while the rest of the country endures above to much above normal temperatures, according to the National Oceanic and Atmospheric Administration. While the East Coast states are expected to exhibit normal conditions for this time of year, territories actually touching the West Coast could see below normal readings.
Heading into the 10:30 a.m. EDT storage report, the newly minted front-month contract was trading at $2.829. However, immediately following the release of the 57 Bcf injection number, the August contract plummeted to a low of $2.659.
Citi Futures Perspective analyst Tim Evans, who had been expecting a 51 Bcf injection, said that while the actual build was larger than many had expected, he still sees the makings of a bullish trend developing.
"The 57 Bcf net injection to U.S. natural gas storage was more than the consensus expectation and suggests a slight weakening in the market's underlying supply-demand balance, although for any one week there can also simply be some timing issues involved," Evans said. "The injection was still below the 85 Bcf five-year average and reduced the year-on-five-year storage surplus for the ninth consecutive week."
In the days leading up to the report industry estimates appeared tightly grouped for an injection well below normal. Both Reuters and Bentek Energy were expecting a 52 Bcf. In addition to coming in well below the 85 Bcf five-year average, the actual 57 Bcf injection also came in well below last year's adjusted 84 Bcf addition for the week.
As of June 22 working gas in storage stood at 3,063 Bcf, according to EIA estimates. Stocks are 653 Bcf higher than last year at this time and 613 Bcf above the five-year average of 2,450 Bcf. The East region led the injection charge by adding 34 Bcf, while the Producing and West regions chipped in 14 Bcf and 9 Bcf, respectively.
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