Cash prices sank Friday overall on average of about a quarter as traders who had gotten their deals done Thursday before the release of Energy Information Administration (EIA) storage data picked up where they left off. They sold early and sold often, and all points suffered declines.
Less-supportive weather forecasts and weaker power prices also aided and abetted. Futures lost again as well. At the close of trading September was down 4.3 cents to $2.877 and October had lost 4.1 cents to $2.885. September crude oil gained a stout $4.27 to $91.40/bbl on a favorable employment report.
Traders on Gulf pipelines where capacity is at a premium were somewhat puzzled by the sharp decline. "FGT [Florida Gas Transmission] is still on allocations, and everyone is wondering why it became so weak just overnight. No one has an answer," said a Gulf trader. "Nymex went down 25 cents Thursday, but typically when that happens it's because of an abnormal or atypical storage number. The number came in a little high, but nothing that would have caused a 25-cent drop-off. As a gas buyer, I'm OK with it.
"There was a basis of about 30 cents on [Florida Gas Transmission] Zone 3, and that dropped in half. The premium on delivered gas was about 70 cents finishing up July, and now it has dropped in half. These are drastic price changes over the last three days."
The Gulf trader suggested that in spite of the big drop, most cash traders did not reduce volumes bought, or increase sales at index, during the most recent August bidweek. "Everyone was waiting for the bottom to drop out of the market, but most of us thought it would be next month, not this month. Typically, traders power through August, September falls off, and October goes to nothing. We were all anticipating it happening, it's just a month early. I'm looking for an even weaker September and October."
Gulf quotes for weekend and Monday delivery plunged. ANR SE was down 20 cents, and FGT Zone 3 posted a loss of a couple of pennies more. Columbia Gulf Mainline tumbled nearly a quarter, and Texas Eastern E LA shed about 21 cents. Tennessee 500 L was off by 23 cents, and deliveries to the Henry Hub skidded a quarter.
Weather forecasts helped propel Midwest quotes lower. Tom Skilling, a meteorologist with the Chicago Weather Center, predicted Friday's high of 93 would rise to 97 on Saturday before slipping to 83 on Monday. He called Monday "an eminently comfortable day with warm temperatures, plentiful, nearly unlimited sunshine and reduced humidities," in comments made on his website.
Monday deliveries at the Chicago Citygate fell about a quarter along with gas traded for weekend and Monday delivery on Alliance. Michcon and Consumers were both down about 20 cents, and deliveries to Northern Natural Gas Ventura also tumbled a quarter.
At eastern points gas prices for Monday delivery had to endure the indignity of lower next-day power prices as well. IntercontinentalExchange reported that real time peak power for delivery at the PJM West Hub sank $18.01 to $47.63/MWh.
Monday parcels into Tetco M-3 swan dived about 30 cents and deliveries into Dominion and Clarington each fell a few pennies less. Transco Zone 6 New York tumbled approximately 40 cents.
Analysts saw Thursday's 25-cent price plunge largely driven by revised weather outlooks. "The fact that the temperature moderation that is expected out into the third week of August is coinciding with the wind-down of the cooling season appeared to accentuate [Thursday's] selling," said Jim Ritterbusch of Ritterbusch and Associates.
"As traders begin looking ahead toward the shoulder season, some leveling in the supply surplus is anticipated following months of contraction in the storage overhang. [Thursday's] reported 28 Bcf hike boosted supply to more than 3.2 Tcf, a level that compares with storage just above 2.8 Tcf within the five-year averages. While this surplus of more than 400 Bcf would appear substantial, we would note that the overhang has shrunk to around 14.5% compared to an excess of almost 60% last spring. This dynamic of a narrowing in the overhang has been driving values higher all summer. However, we view the summer advance as complete, even allowing for some occasional storm related price spikes," he said in a morning note to clients.
Futures traders following Friday's weak finish were ready to stick a fork in the market. "We couldn't hold over $3, the [EIA] number was disappointing, and volume and open interest had shrunk to nothing before the rally up to $3.20. It was a classic short covering rally," said a Washington D.C. analyst.
"For producers who wanted [to hedge with] a 3 in front of their sales, it was gone in a matter of days. Unless it gets really hot again, the market looks done. Put a fork in it."
The analyst suggested that $2.70 was the next major support area. "A big congestion area," he said.
He did acknowledge that there was a storm brewing in the Atlantic, Ernesto, but "unless it hits Pittsburgh, it's less and less important."
Storm-related price spikes have yet to materialize, although the tropical Atlantic now has three systems in play. At 2 p.m. EDT the National Hurricane Center (NHC) reported that Tropical Storm Ernesto was 340 miles south southeast of San Juan, Puerto Rico and was up to 50 mph winds. It was headed west at 21 mph, and NHC projections showed it passing off the western tip of Cuba and into the Gulf of Mexico.
NHC was also following a well defined low-pressure area 135 miles southwest of the Cape Verde Islands and gave it a 50% chance of developing into a tropical cyclone in the succeeding 48 hours. A third pattern consists of a large area of disorganized showers and thunderstorms off the northwest coast of the Bahamas, and that has a 20% chance of developing, NHC said.
The 8:30 a.m EDT July Employment Report by the Labor Department showed non-farm payrolls grew by 163,000, well ahead of economists' forecasts of 100,000. The unemployment rate held steady at 8.3%. Equity and oil markets rose.
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