Cash natural gas prices eked out a modest gain Wednesday, but traders were not optimistic prices would hold current relatively lofty levels for long. A soft bidweek is expected. Midcontinent points were firm and at Northeast and Eastern locations double-digit increases in next-day power prices helped lift next day gas. At the close of futures trading August had fallen 11.7 cents to $3.070 and September was lower by 12.5 cents to $3.052. September crude oil added 47 cents to $88.97/bbl.
Midcontinent points showed modest gains, but traders are thinking prices will fall sharply by the end of injection season. "We have had so much supply come online that we don't know what will happen come September and October. I am looking for sub $2," said a Midcontinent marketer. "Some pipelines are getting constrained, volumes are getting cut and this is a sign of things to come. And that is when the loads are here. Southern Star and to some extent Panhandle are having problems, and gas has to be renominated.
"The problem is that storage is so full that people have to re-balance. We are having issues that are coming to haunt us. A broker called the other day and was asking what was going on, and I told him I was scratching my head. Whenever I scratch my head, it seems like a time to sell," he said.
He added that $3 gas in the Midcontinent was not likely to last, and weather forecasts are not as hot as earlier in the month. "Last week was very hot; this week is a typical July, and the weather is stabilizing. People aren't buying as much. Power plants are not taking as much gas. There are just incredible supplies. Wait until October. Mark my words. Natural gas will trade below $3 [Nymex] this bidweek. All this gas has to be priced and now everyone wants to price their gas for bidweek and price is going down."
Prices at Midcontinent points are generally hovering in the $3.05 range and gas for delivery Thursday gained a few pennies. NGPL Midcontinent Pool rose just under a nickel and Panhandle Eastern added a couple of pennies. ANR SW was flat, but deliveries on Oklahoma Gas Transmission lost about a few cents. Gas at CenterPoint East and parcels into Northern Natural Demarcation added a couple of pennies.
Gains in next-day power prices in the Northeast and Mid-Atlantic helped boost quotes on New England and Eastern pipes. At the New England Power Pool next day DA LMP (Day Ahead Locational Marginal Price) jumped $11.66 to $51.72/ MWh.
Quotes on Algonquin Citygate added about nickel, and gas delivered to Tennessee Zone 6 200 L and Iroquois Waddington was higher by more than a nickel.
Eastern locations also exhibited healthy gains as next-day power prices surged. DA LMP at the PJM West Hub jumped $28.44 to $79.18/MWh.
Gas deliveries on Tetco M-3 added about 7 cents and Transco Zone 6 New York over a nickel. Deliveries on Dominion and Clarington were both up a few pennies.
Futures traders share the sentiments of the Midcontinent marketer.
Wednesday "was a technical move. There wasn't a whole lot of weather news and some of the trade boys came in and started selling. Once it broke below $3.12 they really started selling some strips," said John Woods of J. J. Woods and Associates. "I expect the market to get hit pretty hard, and I don't see it sustaining anything higher if for no other reason than there is just a ton of gas out there. You had some trade selling and some funds lighten up."
Any selling Thursday will have to reconcile an expected government inventory report expected to show increases in inventories far below historical averages. The 10:30 a.m. EDT Energy Information Administration inventory report is anticipated to show a build in the mid-20 Bcf range, far below last year's 48 Bcf increase and a five-year average pace of 61 Bcf.
Analysts at United ICAP predict an increase of 24 Bcf and both a Bloomberg survey and industry consultant Bentek Energy calculate a 26 Bcf build.
"We heard initially a 25-30 Bcf build, but that was revised to a mid to lower 20 Bcf increase," said Woods.
In spite of the day's decline, the searing heat in the midsection of the country is expected to continue if not increase, according to short-term weather forecasts. Commodity Weather Group in its 11- to 15-day forecast shows much-above-normal temperatures centered over Kansas and Missouri, below-normal temperatures stretching along the Continental Divide, and above-normal temperatures along the West Coast. Maine to Virginia is expected to be above normal.
"The short-range heat spike in Chicago [Wednesday] should yield upper 90s with an advance to the East Coast that favors upper 90s to low 100s in the Mid-Atlantic. Otherwise, the main six- to 10-day focus is for heat in the middle third of the nation, including same-to-hotter trends down into North Texas," said Commodity Weather Group President Matt Rogers.
"Big questions continue for the 11-15-day as the models flirt with the idea of sending hotter ridging to the West with stronger heat chances for the coast. [Wednesday's] European ensembles are weaker with the effort (lowering confidence), and they also show less cooling into the Midwest than they offered for the late 11- to 15-day [Tuesday] morning. Heat ahead of the cold front could offer the East Coast another spike early in the week of Aug. 6."
Data from the National Weather Service (NWS) quantifies just how hot it is. For the week ended Saturday (July 28), NWS forecasts that only Vermont will have a below-normal accumulation of cooling degree days (CDD). Major energy markets can expect to see positive variances of 15% or more. New England is forecast to endure 61 CDD, or 16 more than normal, and New York, New Jersey and Pennsylvania can expect to see 69 CDD, or 10 more than the normal seasonal tally. The Midwest from Ohio to Wisconsin is expected to see 91 CDD, or 33 more than normal.
As might be expected, it's been an active season for power generators attempting to satisfy air conditioning loads. NWS measures the cooling season from Jan. 1, and since then New England has seen a total of 298 CDD, or a whopping 113 more than normal. The Mid-Atlantic has suffered through 464 CDD, or 161 more than its seasonal norm, and the Midwest has baked to the tune of 643 CDD, or 282 more than its seasonal norm.
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