Physical prices rose overall on average by about 12 cents Thursday as buyers reported stout power burn requirements. Gains were widespread with West Coast power requirements advancing and the only weakness shown by a handful of Northeast locations.
The Energy Information Administration (EIA) reported a build of 28 Bcf, well below expectations, and futures closed higher. At the end of the day the August contract had added 2.6 cents to $2.999 and September had advanced 3.1 cents to $2.981. August crude oil gained a stout $2.79 to $92.66/bbl.
"It's hotter than blazes here and everyone is buying for power burns," said a Midcontinent trader. He added that even with the expanded usage for electrical generation "we have no problem getting gas. Once the power burn finishes in the fall, we'll go back to a glut. That is what I am hearing from everybody. Pipelines and storage operators are saying there is plenty of gas available but you can't put any in."
The trader said he was mainly involved in satisfying the needs of his customers, but "If I were speculating, I would sell the bananas out of the market; $3 is a good barrier and where some producers want to hedge their production. Whenever I see $3 or $3.01, I see lots of people wanting to sell."
Quotes on ANR SW gained more than 15 cents, and gas delivered to NGPL Midcontinent and NGPL Amarillo both rose by more than a dime. Oklahoma Gas Transmission and next-day gas on Panhandle rose by similar amounts.
High West Coast power demand and higher power prices helped propel gains at California points. The California Independent System Operator (CAISO) said early afternoon loads across the CAISO system were running 36,224 MW, but Friday's peak load was expected to reach 37,225 MW.
IntercontinentalExchange disclosed that next-day power at primary California delivery points rose. Day-ahead locational marginal prices (DA LMP) at NP-15 rose by $2.72 to $28.19/MWh and deliveries to SP-15 gained $2.01 to $33.43/MWh.
Next-day gas at SoCal Border added nearly a quarter, and deliveries to the SoCal Citygate and on El Paso South Mainline each rose by more than 15 cents. Deliveries to Malin jumped a quarter.
The few losers on the day proved to be Northeastern points as forecasts call for nominal cooling. Although prices are comfortably perched above $3, quotes on Algonquin Citygate shed more than 15 cents, and deliveries to Iroquois Waddington dropped 20 cents. Gas on Tennessee Zone 6 200 L fell a quarter.
Wunderground.com predicted that Thursday's high in Boston of 81 would fall to 77 on Friday. The normal high this time of year is 83.
Analysts see natural gas usage remaining strong despite some who calculate an advantage to coal. "There were some who thought the natgas burn would drop off in July and August because utilities would be ramping up coal units and keeping them hot," said Kyle Cooper, managing director at IAF Advisors in Houston.
"What I think is apparent with the 28 Bcf injection reported today, is that utilities are still using a significant number of gas units in that mix and keeping a number of coal plants people thought would come up, down. The utilities are not running as much coal and going more towards natural gas.
"It's real close to breakeven [coal vs. natural gas] at this level, but there are arguments that it is much higher, and much lower. It may come to the comfort level of ISOs [independent system operators] with bringing back some coal units as baseload compared to running natural gas units to the limit."
In the aftermath of Wednesday's poorly understood gains, Thursday's Energy Information Administration (EIA) inventory report was set to receive more than its usual share of attention. Price action following the release of the figures was closely scrutinized to not only see if the recent high of $3.06 could be taken out and chart the market on a new course higher, but also vindicate those who suggested Wednesday's price spike might have been an indication of positioning prior to the release of the EIA data.
Analysts had been anticipating something unusual. "This week will likely offer a surprise of some sort -- our range is just shy of 20 Bcf -- a number that's often thought of as 'forecasting heresy' at this point on the calendar," said John Sodergreen, editor of Energy Metro Desk. The dynamic of natural gas consumption for power generation and weather forecasts seems to be especially challenging. "Rationalizing weather models and gas burn for power generation seems to be the big nut that nobody (almost nobody) seems to be able to crack on a consistent basis. Or maybe operators are simply playing with all of us in their weekly reporting. We know some traders might be playing with us this week. Wednesday saw some huge volumes traded around 9:15 a.m. and prices went to the moon. Last year produced a similar bit of action seconds before the EIA report was published last year."
Conspiracy theories surfaced when the actual figure came in at a lean 28 Bcf, well below expectations and short of historical standards. Last year 67 Bcf was injected, and the five-year average stands at 74 Bcf. IAF Advisors of Houston calculated a 30 Bcf build, and the folks at United ICAP were expecting a 37 Bcf injection. Bentek Energy was looking for a 31 Bcf increase.
The Energy Metro Desk Survey came in at a 33 Bcf build and, according to Sodergreen, "Bentek sees risk to the high side of its 31 Bcf forecast, but a little bird tells us that risk may actually be to the low side of this week's consensus...Our little bird tells us a 28 Bcf build might be just the ticket. Hmm."
Chalk up one for little birds.
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