The physical market ticked higher in most regions of the country on Wednesday except for much of the Northeast, where forecasts of cooler temperatures prompted drops from a few pennies to more than 80 cents. Gulf and California locations were firm.
Futures took what some called a suspicious bounce higher. At the close of futures trading August had risen 17.7 cents to $2.973 and September was higher by 16.4 cents to $2.950. August crude oil added 65 cents to $89.87/bbl.
Prices at Florida points remained stout as warm temperatures and electrical generation load made space on pipelines scarce. "The heat is going to keep transportation [on Florida Gas Transmission] allocated and the spread high," said a Florida buyer.
The buyer said that this condition was likely to persist as long as warm temperatures and electrical loads continue. "If it's really hot it [allocations] happens, but throughout the summer it's always a little tight because everyone's load is up. This is nothing new for us.
"FGT is the only pipeline into Florida besides Gulfstream, and Gulfstream is limited. Often it's most economical to pay for the gas and pay the transportation," he said. "There are people thinking about a lateral from Transco. Transco flows north and that would enable gas to come south." That would also enable Marcellus production to reach Florida, he noted.
Quotes at Gulf points advanced. Florida Gas Transmission Zone 3 added almost a nickel, but Columbia Gulf Mainline, ANR SE and Henry could only muster gains of a couple of pennies. Tennessee 500 L gained nearly a nickel and Tetco E LA added a few pennies more.
A forecast for cooler temperatures sent eastern prices tumbling, but the change in temperatures was expected to bring dangerous storms. "As a cold front slices into high heat and humidity, severe storms are erupting from Indiana to Massachusetts and southward into Tennessee," said Samantha Kramer of AccuWeather.com. "The storms are expected to affect major cities like Boston, New York, Philadelphia, Baltimore, Pittsburgh, Washington DC, Cleveland, Providence and Hartford," she said.
AccuWeather predicted the high in New York Wednesday of 97 would drop to 86 on Thursday and 75 on Friday. Philadelphia's 100 degree high on Wednesday was expected to slide to 89 on Thursday before reaching 76 on Friday.
Algonquin Citygate was quoted more than 85 cents lower and next-day gas on Tennessee Zone 6 200 L tumbled by 75 cents. Gas into Iroquois Waddington fell nearly a dime.
Other eastern points fell as well. Transco Zone 6 New York shed nearly 20 cents and Tetco M-3 and Dominion skidded about a penny a piece. Gas into Clarington bucked the trend adding close to a nickel.
California locations were firm. SoCal Border was up almost a nickel and SoCal Citygate added a couple of pennies. PG&E Citygate gained about a dime.
Futures bounded higher but some suspected less than market forces were involved. "I think it was a fat finger, and in a couple of minutes 10,000 lots were traded. The way it went up to $3.02 and just fell back off seems like too aggressive an action to happen all that quickly," said a New York floor trader.
"It looks like someone made an error. Following the jump, there was short covering, and it looks like someone is now trying to protect a long position. It doesn't mean we are going to stay up there."
The trader pointed out that if someone wanted to aggressively put on a position it was unlikely that it would happen with just one order. The buying could be layered in over the course of the trading session. "It's not the way it's usually done."
Prices may continue higher. "There were some key resistance points hit in the middle to upper $2.80s," he said.
Just how much higher prices can go may depend on the 10:30 a.m. EDT inventory report by the Energy Information Administration. The ongoing trend of a shrinking storage surplus is likely to continue, but data outside of the range of expectations could trigger a sharp move higher or lower.
At this time last year a stout 67 Bcf was injected and the five-year average is for a 74 Bcf build. This injection season has been anything but normal, and estimated increases are coming in far less.
United ICAP predicts an increase of 37 Bcf and Houston-based IAF Advisors is looking for a 30 Bcf build. Industry consultant Bentek Energy utilizing its North American flow model calculates an increase of 31 Bcf.
Following Tuesday's lackluster performance, analysts saw natural gas prices balanced. "The natural gas market seems to have shifted into neutral, with trade settling down into a less volatile trading range at what we think is a plausible short-term equilibrium price level," said Tim Evans, an analyst with Citi Futures Perspective in New York.
"A drop to $2.40-2.50 would make nearby futures a bargain in our view, while a step up to $3.10-3.20 would be hard to sustain, with natural gas losing its competitive advantage to coal at the higher price level."
Evans calculates a somewhat more robust build than others for Thursday's inventory report. He said "the population-weighted cooling degree day accumulations for the week ended July 13 were a step down from the week ended July 6, so our model points to a more material 46 Bcf build."
Weather forecasts have turned warmer in the near term. Commodity Weather Group in its six- to 10-day outlook said Wednesday's "forecast trends hotter for the eastern third of the U.S. for especially the middle to end of next week. Another quick spike of heat centered on Thursday could push the Mid-Atlantic into the mid-upper 90s briefly before another cool front. Otherwise, the main heat focus continues for the Midwest and Plains."
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