Cash prices for weekend and Monday gas fell Friday with Northeast, Midwest and Ohio Valley points taking hard hits following revised weather forecasts. California exhibited relative strength as expectations were for triple digit temperatures at interior locations. Futures swan-dived lower as traders saw the underpinnings of what was considered a weather-driven market collapsing. At the close of futures trading September tumbled 17.5 cents to $2.770 and October dropped 16.2 cents to $2.808. September crude oil shed 49 cents to $92.87/bbl.
Weather forecasts have abruptly changed. WSI Corp. of Andover, MA in its six- to 10-day outlook said Friday's forecast was "much warmer in the Northwest and colder over most of the central and eastern U.S. than it was yesterday [Thursday]."
It said that confidence in the forecast was average as weather models were in good agreement that morning. Risks to the forecast included "temperatures trend[ing] colder over most of the central and eastern U.S. than currently forecast as the NAO [North Atlantic Oscillation] is forecast to transition to a moderate to strongly negative phase in mid-to-late August."
Some see the impact of the cooler weather as limited to certain markets. "A lot of the traders are blaming the market declines on cool weather in the Midwest, but they are totally missing the point," asserts a Rocky Mountain producer.
"Last August Illinois, Michigan, and Ohio used a combined 31 Bcf for power. Arizona alone used a little more than that and Oklahoma used 43 Bcf. They have a lot of coal and nuclear, and it doesn't matter to gas demand what the summertime weather is like.
"Florida and Texas dwarfs everyone else, but Oklahoma was surprising. They have a lot of gas-fired generation plants down there. You would think Illinois, Michigan, and Ohio with their population would have a lot of demand," he said.
"People thinking the cool weather in the Midwest is going to hurt demand are nuts. Hot weather in California and Arizona is going to more than offset it."
Cash prices at Midwest points, nonetheless fell. Chicago Citygate gas for weekend through Monday delivery was seen 5 cents lower, and on Consumers prices fell 7 cents. On Michcon quotes were coming in 4 cents lower and on Alliance Monday deliveries gave up 6 cents.
Forecasts of increasing hydropower do not seem to be helping the bull's case. The Northwest River Forecast Center on August 3 predicted that April-September flows at The Dalles Dam east of Portland, OR would be 110,378 KAF (thousand acre feet) per second. On August 8 it forecast the April-September flows at 112, 656 KAF or 14% above normal.
Weekend and Monday gas prices showed relatively modest declines as California and portions of the West were expected to bake. AccuWeather.com meteorologist Ken Clark said "the pattern has already delivered the hottest weather of the season so far to parts of the West and will continue to push the mark through the weekend." Temperatures were expected to inch toward the 90-degree mark in Los Angeles through the weekend with inland readings up to 110 degrees at some locations. "Temperatures will also climb to hot levels over the interior sections of the Bay Area," Clark said.
Quotes on El Paso S. Mainline, PG&E Citygate, and SoCal Citygate all fell 3 cents for gas for weekend and Monday delivery. Deliveries to the SoCal Border shed a nickel and gas into Malin rose a penny.
South and East Texas were hit hard by the day's declines. Transco Zone 1 fell about 9 cents, while NGPL S TX and the Houston Ship Channel were both down a nickel. Katy shed 6 cents and Tetco S TX lost a dime.
Deliveries to the Algonquin Citygates shed a quarter and gas on Tennessee Zone 6 200 L fell 22 cents. Parcels into Iroquois Waddington fell over a dime, and the depressed Marcellus Market Zone fell nearly twenty cents after trading as low as $1.75.
Futures traders see near-term weather as losing its impact as a price driver. "We will continue to underscore the market's inability to respond to a seemingly bullish EIA report and a supportive updated hurricane outlook as strong indications of a market capable of more weakness," said Jim Ritterbusch of Ritterbusch and Associates in closing comments. "We have mentioned the $2.70 level as a near term objective and we would expect achievement of this target early next week unless weekend temperature forecasts shift considerably or some additional tropical storm development is seen. But, with the closely watched 8-14 day forecasts beginning to stretch out to the final week of August, the temperature factor is quickly losing pricing punch."
Ritterbusch sees $2.50 in sight. "Overall, we are maintaining a bearish short term view of this market and would suggest holding any short positions established yesterday within the $3.00-3.10 zone. We would suggest lowering stop protection to above today's $2.97 highs basis the October contract on a close only basis. From a longer term perspective, the odds of an ultimate decline to the $2.50 area have been significantly upped via price action of the past two sessions."
In its 5 pm. EDT report, the National Hurricane Center (NHC) said Tropical Depression Seven was located about 510 miles east of Barbados and had sustained winds of 35 mph. It was moving to the west at 24 mph and NHC projections showed it moving into the Caribbean. In the far eastern Atlantic, near the Cape Verde Islands, a low pressure system associated with a tropical wave shows a 30% chance (down from 50%) of becoming a tropical cyclone in the next 48 hours, according to NHC.
Now Tropical Depression Ernesto was breaking up over the mountains of Mexico and was down to 25 mph. Weather patterns associated with the remnants of Florence were no longer being followed.
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