The cash market added on average about 4 cents Tuesday for Wednesday and Thursday delivery as traders had to reconcile typical low holiday demand with higher weather-driven requirements as sections of the East and Midwest were expected to grapple with heat and humidity. The only points down on the day could be found in the Marcellus Shale production zone and a handful of spots in California and the West.
At the close of futures trading, August had added 7.5 cents to $2.899 and September had gained 7.9 cents to $2.911. August crude oil zoomed $3.91 to $87.66/bbl.
A Great Lakes marketer said he was just hanging out and not buying gas at this early point in the month, but he was hoping the hot, humid weather would pass his area by. "The hot weather is burdensome enough, but it becomes even more oppressive with the high humidity."
"Brutal heat will be reinforced across much of the eastern two-thirds of the nation through the rest of this week, while hundreds of thousands struggle without power," said Meghan Evans, AccuWeather.com meteorologist. "Ahead of a storm bringing severe weather to the Great Lakes region, sweltering heat is ramping up across the nation's heartland. Temperatures will soar well into the 90s and pass the century mark from the central Plains into portions of the Mississippi and Ohio valleys through much of this week."
AccuWeather.com predicted Tuesday's high in Detroit of 87 would rise to 96 by Wednesday before receding to 93 on Thursday. The normal high in Detroit at this time of year is 83.
Quotes on Michcon, Consumers, Chicago Citygate and Northern Natural Gas Ventura each climbed nearly a dime.
The main Marcellus cash point suffered a sharp decline Tuesday. A spokesman for Tennessee said those points had been restricted since early spring. "The severity of the restriction causes the price to move, and it's likely that less gas is going to Stagecoach and Connecticut LDCs [local distribution companies]. Tennessee's Marcellus production is an attractive supply and the pipeline interconnects run full. It's the LDC loads that pretty much swing," he said.
Tennessee Zone 4 Marcellus plunged more than 35 cents as a result, but other eastern points were firm. Tetco M-3 and Transco Zone 6 NY added about a dime apiece.
Joining Tennessee Zone 4 Marcellus in the red on Tuesday were a handful of locations in the West. Socal Citygate, Southern California Border Average and few other locations each declined by less than a nickel.
Futures traders were not surprised to see a strong finish as a soaring petroleum complex became difficult to ignore. Many traders covered short positions and exited prior to the closing bell. "Crude is up almost $4, heating oil 8 cents and RBOB almost a dime," said a New York floor trader.
Late last week when July futures scooted up to $2.946, the technical environment changed. Analysts had noted a large inverted head and shoulders formation, a classic market-reversal pattern. The break higher above the so-called "neckline" signaled that a move higher had begun.
"Looks like a breakout. As long as natgas can hold above the neckline, we could see a nice short-covering rally to the $3.500-3.600 area," said Walter Zimmermann, vice president at United-ICAP.
Fundamentals-oriented traders also see a positive market landscape prompted by a diminishing storage surplus. "Although there have been some production losses of late, first from Tropical Storm Debby's passage through the Gulf of Mexico last week and now from some shut-in wells in Colorado due to nearby wildfires, we continue to view warmer-than-normal temperatures as the primary determinant of below-average storage injections," said Tim Evans, an analyst with Citi Futures Perspective in New York.
"The temperature outlook hasn't varied much in recent days (and neither has the price), but we can now extend our forecast into the week ending July 20."
Evans sees this Friday's Energy Information Administration storage report featuring a 39 Bcf build as well below last year's 90 Bcf and a five-year average 79 Bcf. "With storage as forecast, the year-on-five-year storage surplus that was as high as 927 Bcf back on March 30 and reduced to 613 Bcf as of June 22 would fall to 430 Bcf as of July 20, extending the supportive trend," he said in comments to clients.
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