The cash market retreated on average by 6 cents Thursday as traders elected to do their deals ahead of the release of important government inventory figures. Eastern and Northeast points took the biggest hits as forecasters were calling for unseasonably cool weather to infiltrate the Midwest and Ohio Valley, while losses in California were limited as a heat wave was expected to stay through the weekend..
The Energy Information Administration (EIA) reported a build of just 24 Bcf, short of industry expectations, and prices momentarily soared before giving up most of the gains. At the close of futures trading September had gained 1.2 cents to $2.945 and October had added 0.9 cent to $2.970. September crude oil gained a penny to $93.36/bbl.
At eastern and Midwest points prices plunged as unusually cool weather was forecast to hit Chicago, Cleveland and Buffalo and work its way south over the weekend. Once again, a couple of Marcellus points ran contrary to the rest of the market, this time posting gains.
"Unseasonably cool air will sweep from the northern Plains through the Midwest and Appalachians into the weekend," said AccuWeather.com meteorologist Alex Sosnowski. "Without the massive area of high pressure parked over the central plains, like much of the summer, the door is open for additional refreshing air masses and opportunities for rainfall on occasion through the rest of August.
"In Chicagoland, while actual temperatures will peak in the 70s, with the wind and clouds, it may feel more like the mid-60s Friday. Temperatures are forecast to peak only near 70 Friday in Detroit and in the lower 70s Saturday around Buffalo. In parts of the central and northern Appalachians, temperatures may fail to get out of the 60s on Saturday, while dropping well down into the 50s at night."
Traders were not optimistic for Friday prices. "I think we'll see a big old crush tomorrow. Nobody will buy any gas for over the weekend [with a forecast like that above], and if they do, they will buy it on an intraday basis if they need it," said an East Coast marketer.
He added that he could accomplish any trades via phone calls and texting. Some areas are more active than others, based on power plant needs. "There are a number of gas power plants in the Boston area, but they won't be burning much if the temperatures are way down.
"New York is usually the driver of the things we do over the weekend, and there is usually not a lot of Boston business. New York is expected to see thunderstorms and a high of 82 Saturday and Sunday is forecast to be a high of 85 and low of 68, and it looks like there is no big warmup any time soon. I think the hot weather is over."
Next-day gas into the Algonquin Citygate tumbled 55 cents and deliveries on Tennessee Zone 6 200 L were down 59 cents. Gas into Iroquois Waddington dropped about 14 cents.
Other eastern points lost ground as well. Friday gas at Tetco M-3 shed 7 cents, and parcels into Clarington were down more than a nickel. Quotes at Transco Zone 6 New York and Dominion each lost just shy of a dime.
West Coast prices showed declines less than the national average as expectations were for high power demand Friday and through the weekend. The California Independent System Operator (CAISO) reported that afternoon peak usage was expected to peak Thursday at 46,743 MW and Friday's peak usage was expected to hit 46,636 MW.
As a result of the heat wave, the grid operator declared a Flex Alert for Friday through the weekend. "Consumers are urged to reduce their energy use during the afternoon when air conditioners drive consumption," the ISO said in it's alert.
Forecaster Wunderground.com said Thursday's high in Los Angeles of 86 was expected to ease to 82 Friday before seeing a gradual decline over the weekend with Monday's high reaching a pleasant 75. The normal high in Los Angeles this time of year is 84.
Friday gas delivered to PG&E Citygates eased 3 cents, and deliveries to Malin slid a nickel. SoCal Citygates were quoted a couple of pennies lower, and Socal Border was 2 cents higher than Thursday's pace.
Gulf Coast prices weakened by more than a nickel. ANR SE was seen about 6 cents lower, and Columbia Gulf Mainline was off about 6 cents as well. Tetco E LA and Tennessee 500 L lost about a nickel each and the Henry Hub dropped more than a nickel.
Futures traders are circumspect about the market's next direction given its failure to hold above $3 after a bullish inventory report. "The feeling was that the market was not going to sustain a rally which it didn't," said a New York floor trader.
"I think overall the market feels bearish, and I think sitting under $3 is where it belongs. You have some longs that got pulled into the market because prices stayed up there [above $3] for a while, but there wasn't enough momentum and the rally failed. Now they are all nursing loosing positions. Any rally is an opportunity to sell."
The trader estimated market support at $2.93, "but if it gets below $2.93 those guys will bail and that will take us to $2.91. From there the mid to low $2.80s should be support," the trader said.
Market bears were looking for a repeat performance of last week's market response to the EIA inventory report. At that time estimates for the increase were swirling around the 23 Bcf mark, but the actual figure came in at a plump 28 Bcf and prices plummeted. By the time the pieces had been picked up September was a stout 25 cents lower at $2.920 and visions of $3 support were dashed.
Expectations for this week's report were somewhat similar. Citi Futures Perspective analyst Tim Evans was looking for a 23 Bcf build and analysts at United ICAP forecast a 32 Bcf increase. Industry consultant Bentek Energy utilizing its North American flow model forecasts a build of 29 Bcf. Last year 31 Bcf was injected and the five-year average is a 45 Bcf build.
In assessing his 23 Bcf estimate and forecasts through Aug. 24, Evans called storage surplus "broadly supportive" and calculated the year-on-five-year surplus to reach 346 Bcf as of the 24th.
Broadly supportive indeed. When the EIA reported a build of 24 Bcf, prices rocketed higher reaching a high of $3.120 before collapsing.
There were some who thought there might be some surprises in the number. "Last week, 2012, EIA said 28 Bcf and the market was around 20-22 Bcf. It's a rough calendar stretch for all hands it seems, and we think this week may be a bit edgy as well," said John Sodergreen, editor of Energy Metro Desk. "All sorts of strange signals flying around. Analysts are equally split between risk to the high side and low side of this week's consensus. Many analysts said there is a good argument for the report coming in roughly 4 Bcf higher or lower! Our consensus is 29 and our editor is a little lower at 25 Bcf."
In its 5 p.m. EDT report, the National Hurricane Center (NHC) said Tropical Storm Ernesto was poised to break up over the mountains of Mexico as it continued west with 50 mph winds at 10 mph.
NHC was also following Tropical Depression 7 about 1155 miles east of the Windward Islands. It showed winds of 35 mph and was moving to the west at 20 mph.
The post-tropical remnant low of Florence a few hundred miles northeast of the Leeward Islands was not given a significant chance of reforming into a tropical cyclone, and a tropical wave approaching the West Coast of Africa was given a 20% chance of becoming a tropical cyclone in the next 48 hours.
©Copyright 2012 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.