Cash natural gas prices dropped about 5 cents overall Thursday as traders wrapped up most deals prior to the release of government storage data. Weakness was widespread with only a handful of Northeast and eastern points staying flat or showing slight gains.
The Energy Information Administration (EIA) reported an increase of 28 Bcf in its weekly storage report, well ahead of what traders were expecting, and futures tanked. At the close of trading September had fallen 25.1 cents to $2.920 and October was down 24.5 cents to $2.926. September crude oil shed $1.78 to $87.13/bbl.
Rocky Mountain prices softened as a continued influx of Canadian gas kept pressure on western pricing points as well as California. "There is Canadian gas; there is no doubt about it," said a Rockies producer.
He noted that flow rates in the Columbia River basin were starting to drop and power prices were starting to improve, thus dampening the flow of gas southward, but "Canadian gas is in big trouble. It's $2 to move gas from western Canada to eastern Canada, and they are fighting REX in Chicago, and the pipeline shipping costs are increasing as volumes decline."
He suggested that the last resort for western Canada producers would be to send their gas to the Pacific Northwest and northern California. "At some point their lower production will bring their [high] storage down along with exports, but who knows when that will be?"
Quotes at the Opal Plant tailgate for Friday delivery skidded about a nickel, and deliveries to the Cheyenne Hub and Northwest Pipeline Wyoming were about 5 cents lower as well. CIG was down nearly a dime, and Malin lost about a nickel.
Next-day gas at California points also weakened as next-day power prices showed only nominal changes, and forecasts called for below-normal temperatures. PG&E Citygate was about a nickel lower as was SoCal Border. SoCal Citygate and El Paso S Mainline each lost a couple of pennies.
IntercontinentalExchange reported that day-ahead locational marginal prices (DA LMP) for California power delivery points showed little movement. At NP-15 DA LMP added 10 cents to $32.67/MWh and at SP-15 DA LMP fell $1.36 to $34.58/MWh.
AccuWeather.com predicted that Thursday's high of 80 in Los Angeles would ease to 79 on Friday, five degrees below its normal high. San Francisco's expected Thursday high of 71 was anticipated to fall to 67 Friday, also five degrees below normal.
Gulf points were lower in concert with the overall market weakness. ANR SE and Texas Eastern E LA tumbled nearly a dime. Transco Zone 3 was down about a nickel, and Columbia Gulf Mainline shed about a nickel as well. Tennessee 500 L and Henry Hub deliveries also fell about a nickel
Futures traders versed in Market Profile saw Thursday's plunge as likely to prompt at least a short-term move higher. Tom Saal, vice president at INTL Hencorp Futures in Miami, utilizing his Market Profile studies calculates two value areas that are likely to be tested going forward. "There are two value areas, one at $2.914 to $3.026 and another at $3.143 to $3.197," he said following the market's close. Value areas are a central component of Market Profile and typically value areas are tested soon, if not the next day.
"We've got value areas above us, so maybe we should get something of a short-covering rally [Friday]," he said.
Prior to the open of futures trading analysts were scratching their heads, trying to determine the relationship between gas used for power generation and weather and utilizing that to forecast the week's build in natural gas storage. Expectations for the EIA inventory report were for an increase in the mid-20 Bcf range, but one school of thought had it that it could be closer to 30 Bcf.
John Sodergreen, editor of Energy Metro Desk, said his survey of 37 analysts showed an average of 22 Bcf, but he noted that "gas burn for power is said to have bitten off it's biggest weekly chunk yet," citing a Credit Suisse report. He cautioned that there are "conflicting reports on this tally. It was big, but not hugely different from previous weeks, some analysts say."
Sodergreen had a hunch that the number might come in closer to 30 Bcf. "In the end, we see a build 25 Bcf and above as likely this week. Our bias is high. Our editor took the full contrarian spot with a highballer forecast of 28 Bcf. We'll see. If we see a build at this level, it will be the 13th week in a row that EIA builds have been below the five-year average. The current level is roughly 79% full, a level not usually seen until mid to late September."
Other analysts were looking for somewhat lower numbers. For the week ended July 27 a Reuters survey of 26 traders and analysts revealed a sample mean of 23 Bcf, and United ICAP calculated a 20 Bcf increase. Industry consultant Bentek Energy calculated a 23 Bcf build. Last year 43 Bcf was injected, and the five-year average stands at 56 Bcf.
A tropical system has emerged and according to National Hurricane Center forecasts is headed towards Jamaica. In its 5 p.m. EDT report it said Tropical Depression Five was now Tropical Storm Ernesto and was 295 miles east of the Windward Islands and had sustained winds of 50 mph. It was moving to the west at 22 mph.
AccuWeather.com forecasters said Thursday that Ernesto "could move into southern parts of the Gulf of Mexico" as "a tropical storm or greater" during the latter part of next week.
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