Physical natural gas prices Friday were mostly flat, although a few Northeast points showed constraint-related gains. Prices at most points eased, and without the gains posted on Northeast pipes, the overall market was down on average by about 2 cents. Texas points were mixed and the West Coast was generally weaker. Futures fared much worse. At the close of trading August was down 16.9 cents to $2.776 and September was off 16.4 cents to $2.786. August crude oil imploded $2.77 to $84.45/bbl.
Eastern points included a few titanic gains peppered amongst general overall softness. "Everybody has July 4 weekend hangover fever," said an eastern marketer. The first few days of the weekend are supposed to be hot, but by Monday it does cool off and the rest of the week looks more mild than hot."
The marketer noted that even with a hot weekend, demand would be lower on balance because of less commercial and industrial activity.
AccuWeather.com forecast the Friday high in Boston of 81 degrees would jump to 94 on Saturday before easing to 81 on Monday. The normal high in Boston is 81.
Quotes on Iroquois Waddington fell a couple of cents and Tetco M-3 shed more than a nickel. Weekend and Monday gas on Transco Zone 6 New York was off close to a dime.
Algonquin Gas Transmission reported capacity constraints for Saturday and Sunday at its Cromwell and Southeast compressor stations.
Tennessee Gas Pipeline reported no transportation available for Saturday and Sunday out of Pennsylvania Station 315 and New York Station 224.
Weekend gas on Algonquin Citygate jumped more than 60 cents and quotes on Tennessee Zone 6 200 L were higher by almost 90 cents.
Texas points were widely varied. Carthage and NGPL TX OK were flat to a penny lower, but Transco Zone 1 was off close to a nickel. Houston Ship Channel was higher by more than a nickel and Waha and Katy both rose about a nickel.
West Coast points were steady to lower. PG&E Citygate and Malin were nearly flat, while SoCal Citygate and SoCal Border both shed a few cents.
Futures traders saw prices rise initially after a seemingly supportive storage report but then retreat. Once the 10:30 a.m. EDT Energy Information Administration (EIA) storage report showing a bullish 39 Bcf build was released, prices jumped up to $3.06 but quickly faltered. "There was short covering and weak longs, and that is what took the market back down," said a New York floor trader.
Crude oil and products took a tumble largely on a less than stellar employment report. The 8:30 a.m. Employment Report for June from the Labor Department showed "sluggish" job growth in non-farm payrolls of 80,000, well below expectations as high as 167,000. The unemployment rate held steady at 8.2%.
"It [lower crude and products] probably put a little psychological weight on the market. Natural gas is trying to build a base and is still holding OK. These aren't great numbers, but anything over $2.72 to $2.73 is not a bad close. The recent rally was too much too soon," the floor trader said.
"If the market struggles to hold this settlement, it might be showing itself in a precarious position. The hot weather justified the recent advance, but if the weather turns in the near future, that's going to be enough to push the market down to the $2.50 area."
The ongoing heat and continued dynamic of coal-to-gas switching had analysts coming up with a wide range of estimates for Friday's storage report.
Coal-to-gas switching continues unabated, although one school of thought has it that once natural gas prices reach $3, the economic incentive to switch will be greatly lessened. According to Rusty Braziel of RBN Energy, "Additions to natural gas power burn by electric generators have been about the only thing propping up natural gas prices. If the generators weren't burning so much gas, the storage surplus would be through the roof. Last week EIA [Energy Information Administration] announced that natural gas matched coal's share of U.S. generation for the first time in April [see Daily GPI, June 28]."
Historically, natural gas has consistently traded above coal on a Btu basis for extended periods of time.
Not only did analysts have to figure in coal-to-gas switching, but also huge increases in cooling degree days (CDD) for prominent energy markets. For the week ended July 7 the National Weather Service predicted New England would endure 73 CDD, or 40 more than normal, and the Mid-Atlantic would see 84 CDD, or 35 more than normal. The Midwest from Ohio to Wisconsin was expected to swelter under 102 CDD, or a whopping 52 more than normal.
Estimates for the EIA inventory figures were all over the map. Citi Futures Perspective Tim Evans hit the estimate on the head. He not only correctly predicted a build of 39 Bcf but also was looking for the present 613 Bcf year-on-five-year surplus to fall to 432 Bcf by July 20. A Reuters survey of 25 traders and analysts showed an average 44 Bcf with a range of 32-55 Bcf, and Ritterbusch and Associates calculated an increase of 68 Bcf. Last year 90 Bcf was injected, and the five-year average stands at 79 Bcf.
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