Physical gas for weekend and Monday delivery staged a broad rally Friday with overall market gains on average of more than a nickel. Rockies and East Texas points were strong, but most Northeast and Eastern locations were solidly in the win column as well. Futures made it to new highs, giving new life to the bullish case. At the close of futures trading August had risen 8.2 cents to $3.081 and September was 9.5 cents higher at $3.076. August crude oil fell $1.22 to $91.44/bbl.
Eastern traders saw the market's strength as reflecting strong Monday demand. "I think demand is really low on the weekend and Monday is going to get most of the premium. Load will be up on Monday," said an East Coast marketer. "A lot of Canadian gas will not be going to the States for Saturday and Sunday, but maybe demand will pick up some and that gas be turned back on. I think next week gets hot, but we feel that everyone is long July gas at index.
"We don't have near the heat we had last week, but it should be hot."
Quotes at most Northeast and Eastern points rose. Gas for weekend and Monday delivery at the Algonquin Citygate slipped a nickel, but deliveries to Iroquois Waddington and Tennessee Zone 6 200 L added a nickel.
Parcels into Dominion, Transco Zone 6 New York, Tetco M-3 and Clarington gained from a couple of pennies to just shy of a nickel.
Marching to the beat of its own drum thanks to Marcellus Shale capacity constraints, Tennessee Zone 4 Marcellus stood out from the rest of the market in recording a nearly 60-cent drop.
Power demand across the area was strong. IntercontinentalExchange reported that day-ahead LMP (locational marginal price) at the New England Power Pool (Nepool) for weekend and Monday delivery rose by $4.81 to $34.00/MWh, but day-ahead LMP at PJM soared $20.91 to $57.67/MWh.
Temperatures in Boston and New York were expected to rise. Wunderground.com forecast that Friday's high in Boston of 74 would rise to 77 on Saturday before reaching 84 on Monday. The normal high in Boston at this time of year is 84. The Friday high in New York of 81 was expected to reach 84 on Sunday and 86 on Monday. The normal high in New York is 85 at this time of year.
Rockies points were strong. Gas at Opal added close to a dime, and deliveries to the Cheyenne Hub rose by about the same. CIG Mainline was higher by 6 cents, and Northwest Pipeline Wyoming gained about a dime. Gas at Kern River was about 8 cents higher.
East Texas locations were solidly in the black. Gas for weekend and Monday delivery at the Houston Ship Channel was up about a nickel, and Katy and NGPL TX OK added close to 7 cents.
Futures traded in new high territory taking out the previous high and giving the bulls a fresh set of legs. Not all traders are convinced, however. "Overall, I still view natgas futures prices as overvalued versus the current fundamentals. There is still an exposure of the industry prematurely hitting maximum storage capacity, especially if some of the increases in demand do start to recede..." said a Chicago analyst.
He warned to "not lose sight of the simple fact that even if the industry does not prematurely hit storage limitations, there will be a record amount of natgas in storage prior to the start of the upcoming winter heating season. There will not be a shortage or supply related issues anytime soon ...barring some unforeseen tropical activity in the U.S. Gulf of Mexico."
Others also see storage constraints as less of a market driver. "As the surplus continues to drop, the likelihood of storage congestion this fall becomes more remote. This, in turn, conjures up images of a better-supported physical trade during the shoulder period than would otherwise be the case," said Jim Ritterbusch of Ritterbusch and Associates.
"We will also point out that temperatures remain as the primary driver of price in this market. But with the arrival of August, some storm premium may need to be erased unless hurricane activity begins to develop. With the rollover to the September contract as prompt month in about a week, the tropical storm factor could easily overshadow temperature views as a key price influence with price impact developing in either direction."
If Friday's gains weren't sufficient, weather bulls can expect to be in the driver's seat the week of the 22nd. Forecasters are calling for continued much-above-normal temperatures for the Upper Mississippi Valley. Commodity Weather Group in its six- to 10-day outlook shows above-normal temperatures from the Mid-Atlantic and Southeast as far west as Wyoming with much-above-normal temperatures centered over Illinois, Iowa and Missouri.
"We continue to expect another strong surge of heat through the Midwest and potentially the Mid-Atlantic next week. Chicago should see upper 90s to around 100 [degrees] for especially the early to middle part of next week with hotter extremes over drier areas south and west of the city," said Matt Rogers, president of the firm.
"The models are weaker with heat potential in the Northeast next week. For the 11-15, the models are in good support of shifting the ridge axis west and cooling the East. We continue to resist cooling the western Midwest and Plains as much. Also, the ridge position should continue to keep cities like Memphis and Dallas on the hot side of normal too. California aims for another heat event probably like the short-range one."
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