With the exception of a few Northeast points, physical prices staged a broad rally Tuesday, averaging gains of nearly 11 cents. Moderating temperatures in New England prompted lower quotes on Northeast pipes, and futures managed to join in the rally as well. At the close of futures trading August had gained 7.0 cents to $3.187 and September had risen 6.6 cents to $3.177. September crude oil added 36 cents to $88.50/bbl.
Midwest gas buyers have been fortunate not to have to buy much gas on the spot market during the latest advance in physical prices, and upcoming bidweek purchases may be looking more attractive than attempting to float with the market.
"We've only had to buy gas for one of our customers beyond July bidweek, but we are not liking the higher cash prices," said a Great Lakes buyer. "Typically this is the time we would be buying for storage, but we're not sure given current prices, and we have seen some reports that are kind of leaning towards a warmer fall and possibly continuing into the winter. We are not sure this is the time to make those purchases."
If a warm fall shows up, the buyer may be in good shape, but quotes for Wednesday delivery at points in and around the Great Lakes jumped. Quotes on Michcon and the Chicago Citygate jumped more than a dime, and Alliance was up nearly 15 cents. Consumers Energy and Northern Natural Ventura were also higher by more than a dime.
Longer-term forecasts by the National Weather Service (NWS) show for September, October and November above- to much above-normal temperatures over the eastern two-thirds of the country from New England to Florida and Texas to North Dakota. The greatest anomalies are centered over Illinois.
NWS predicted for August, September and October "enhanced odds for above-normal temperatures for much of the continental U.S. except for the West Coast, Northern Rockies and parts of the Northern Plains."
Gains at Gulf points were equally stout. Henry Hub, Columbia Gulf Mainline and Tennessee Line 500 all gained more than a dime. ANR SE gained about 12 cents, and Tetco E LA rose just under a dime.
Northeast points proved to be the few laggards on the day as temperatures were forecast to break. Wednesday deliveries to Tennessee Zone 6 200 L dropped more than a dime, and gas into Iroquois Waddington shed more than a nickel. Algonquin Citygate quotes fell by close to 20 cents.
AccuWeather.com forecast the high in Boston Tuesday of 89 would drop to 82 on Wednesday before rising to 84 on Thursday. Providence, RI, was expected to simmer under a high of 90 Tuesday before highs eased to 84 on Wednesday and Thursday.
South and East Texas also posted gains. Houston Ship Channel, Katy, and NGPL S TX all added about a dime, Carthage and Transco Zone 1 rose more than a dime.
Futures traders are looking higher. "[Monday] some traders were looking for a move above $3.14. There's a gap on the charts between $3.14 to $3.22, and we almost filled that [Tuesday]," said a New York floor trader. He noted that options expired on Thursday and said, "It's my guess that traders will try to pin the market at $3.25. All those options dealers that sold $3.25 calls are going to want to make sure it doesn't break above that. It could be a battle for the next day or two.
"After expiration [Friday], I think the market has room up to $3.40. It still looks firm and doesn't fail on any pullback. I look for a test of higher numbers in the next few days"
Tuesday's gains notwithstanding, analysts suggest that more temperate six- to 10-day forecasts could soften prices in the near term. "We still see solid support at about the $3 level as was seen [Monday] as the market continues to discount a strong temperature-related pace of demand from the power sector that will likely be keeping storage injections downsized well into next month," said Jim Ritterbusch of Ritterbusch and Associates. "This week's supply number likely won't vary much from last week's 28 Bcf injection and should prove sufficient to support values further. And while the longer-term temperature outlook remains uncertain, it is becoming increasingly apparent that drought-type conditions across most of the nation will be heavily skewing odds in favor of above-normal temps across the entire month of August."
Technical analysts are closely following the market's moves after it has successfully broken through a head-and-shoulders neckline. The formation (inverted, in this case) began forming back in January. To draw definitive conclusions about the market's direction, analysts look for a break of the neckline to determine both magnitude and direction of any ensuing price move.
"For two weeks in a row now, natgas has rebounded from a successful test of the old neckline support," said Walter Zimmermann, vice president of United ICAP, in a weekly analysis for clients. "This is what an up move is supposed to do on its way to a head-and-shoulders bottom target. All roads appear to still lead to the previously cited $3.500-3.600 zone."
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