Physical natural gas prices spiraled lower Friday for Weekend and Monday delivery as the calendar officially ticked over into the second part of August, meaning summer heat is officially on its goodbye tour. Quite a few points dropped by at least dime, led by the Northeast, which saw averages sink from a dime to nearly 70 cents.
Appearing content with the last few days of declines in September natural gas futures, traders put in a mostly uneventful day Friday as the prompt-month contract traded a tight $2.700 to $2.757 range before closing out the regular session at $2.719, down five-tenths of a penny from Thursday's finish and 5.1 cents lower than the contract's close the previous week.
Algonquin Citygate lead the declines Friday by dropping 68 cents to average $3.10, while Tennessee Gas Pipeline Zone 6 200L came off a half dollar to $3.12. Transco Zone 6 NY for weekend and Monday delivery lightened by 17 cents to $2.77.
A Northeast marketer said Friday was mostly uneventful, which he attributed to moderating temperatures. "The weather has cooled down quite a bit and so demand is way off. We saw a pretty tight basis Friday," he told NGI. "I think folks are realizing that a majority of summer is now in the rearview mirror, so gas demand is going to come off a bit as air conditioners go dormant. We're not there yet. At the end of the coming week we're supposed to warm up again, so we'll likely see strong basis, especially with the work on Tennessee and Algonquin with all these new expansions. I think we'll see pretty volatile prices in the Northeast as a result."
Western points including the Rockies dropped from a nickel to nearly 20 cents. In California, SoCal Border dropped 17 cents to average $2.82 and SoCal Citygate was lower by 15 cents to $2.93. In the Rockies, CIG subtracted 11 cents to $2.55 and Northwest Wyoming Pool dropped 14 cents to $2.52.
Most Gulf Coast points declined between 7-15 cents, while a couple of prominent Texas points, Houston Ship Channel in the east and Waha in the West both fell by 9 cents to $2.71 and $2.66, respectively.
Midcontinent locations were up to a dime lighter.
With moderating temperatures, futures could have a tough time finding support as storage injections are expected to increase over the coming weeks.
Citi Futures Perspective analyst Tim Evans said outside of the potential threat of storm activity in the Gulf of Mexico, current fundamentals will likely keep gas bulls corralled. "Near normal temperatures over the next two weeks, along with what is now a seasonal cooling trend will allow an increased flow of net injections to U.S. natural gas storage, tending to cap prices."
While the economy has shown signs -- albeit small -- that a recovery is underway, it has not yet translated into gas demand for industrial purposes in a measurable way, according to BNP Paribas analyst Teri Viswanath. She noted that in a stronger economy, base-load industrial demand might have provided some support for prices during the upcoming shoulder months. "However, demand from this segment continues to disappoint, contradicting broader industrial measures that show improvement."
Citing a U.S. Federal Reserve Bank reported earlier in the week that showed industrial production increased 0.6% in July from month-ago levels, Viswanath said manufacturing might be recovering after a relatively weak spring, However, there has been no growth in industrial gas demand to date.
"In our view, the obvious explanation is that U.S. gas-intensive companies are simply not faring very well this year," she said. "This might come as a surprise given the drop in natural gas prices. However, by and large, industrial companies have not been able to take advantage of discount prices because of lingering weakness in end consumer demand. This means that electric power fuel-switching alone will have to balance the market in the last stretch of the injection season, given side-lined industrial demand and cooler weather."
With Tropical Storm Gordon swirling well off of the East Coast, the only system that oil and gas producers were monitoring Friday afternoon was the one that included remnants of Tropical Depression Seven, which was already in the Gulf of Mexico, the National Hurricane Center said.
"Data from an oil platform along the Gulf Coast of Mexico suggest that a tropical depression may be regenerating very close to the coast in association with the remnants of Tropical Depression Seven," the NHC said Friday late afternoon. "If advisories are initiated...a tropical storm watch or warning would likely be required for a portion of the Gulf Coast of Mexico."
©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.