Physical gas overall Thursday finished fractionally lower with eastern points higher and California locations softer. The Energy Information Administration (EIA) reported an inventory increase of 47 Bcf, much higher than the market was anticipating, and futures prices initially plunged before erasing most of an 11-cent deficit by closing.
Tropical Storm Isaac continued to grind its way west in the Caribbean, but a definitive path won't be known for about another day. At the close of futures trading September had retreated 2.4 cents to $2.802 and October had given up 2.4 cents as well to $2.839. October crude oil fell 99 cents to $96.27/bbl.
East and Northeast locations were strong as high pressure and warmer-than-normal temperatures were expected Friday. Forecaster Wunderground.com said the high in Boston Thursday of 89 was expected to ease to 82 on Friday and Saturday. The normal high in Boston at this time of year is 79. New York City's Thursday high of 86 was forecast to rise to 88 Friday before slipping to 84 on Thursday. The normal high in New York is 82 at this time of year.
The National Weather Service in New York said "high pressure remains over the region through Monday. A cold front impacts the area Monday night into Tuesday night. High pressure builds from the north Wednesday."
With the relatively more mild temperatures compared to two weeks ago, eastern basis has softened. "Tetco M-3 and [Transco] Z-6 is flat at about 9 1/2 cents, said an eastern broker. "Two weeks ago Z6 was trading about 13 to14 cents and [Tetco] M-3 was about 12 cents." More distant basis was stout, however. "Winter Algonquin is going for $2.38 to $2.40 and Z6 is $1.68 to $1.69. Winter M-3 is about 55 cents," he said.
He added that cash traders were following the developments surrounding Tropical Storm Isaac as it neared hurricane strength (see related story). He expected that if the storm was a threat to Gulf production, price increases would "race right up" pipelines serving eastern markets such as Transco and Texas Eastern.
Next-day quotes on Algonquin added 4 cents, and Iroquois Waddington was up a penny. Tennessee Zone 6 200 L added a couple of pennies. Tetco M-3 added 3 cents, and Dominion was higher by 2 cents. Transco Zone 6 New York gained close to a nickel.
California points fell as forecasts called for temperatures sharply below normal. Quotes for Friday gas at the PG&E Citygates fell nearly 3 cents and Malin gained almost 2 cents. At the SoCal Citygate and SoCal Border, however, Friday deliveries skidded 7 cents and 8 cents, respectively. Gas on El Paso S Mainline lost 4 cents.
Wunderground.com predicted the Los Angeles high of 76 Thursday would fall to 73 on Friday and Saturday, 12 degrees below normal. San Francisco's 65 Thursday high was anticipated to rise to 68 Friday and Saturday, five degrees below its seasonal high.
Rockies prices were generally softer. Deliveries at the Opal plant were down about 2 cents and CIG Mainline and Cheyenne were lower by 3 cents and 2 cents, respectively. Northwest Pipeline Wyoming added a penny.
Futures traders had to juggle bullish factors of potential storm development in the Gulf of Mexico along with a bearish inventory report.
All indications before the release of natural gas inventory figures were that a continuing reduction in the storage surplus was in place. The dynamic of ongoing reductions in the storage overhang has been a fundamental driver of recent higher prices, but at the end of the season, traders will still have to cope with what looks to be another record inventory. Last year 66 Bcf was injected at this time, and the five-year average stands at 53 Bcf. This week's estimates didn't even come close.
Kyle Cooper of IAF Advisors calculated a 37 Bcf build, and a Reuters survey showed an average 38 Bcf from a sample of 25 industry traders and analysts with a range of 25-50 Bcf. Bentek Energy was looking for a 37 Bcf increase as well.
The actual figure came in at 47 Bcf, well above market expectations. Prices promptly tanked, reaching the day's low of $2.682 [September] shortly after the figure was reported.
Prices were able to scramble back close to unchanged and according to one New York floor trader "prices could hold $2.75 just because the storm is out there. There are enough shorts in the market that if the storm gets into the Gulf and appears to threaten production, prices could run another 10 to 15 cents."
At present, Tropical Storm Isaac is churning westward in the eastern Caribbean, but its full potential to impact Gulf infrastructure won't be known until it makes its anticipated turn to the north later in the week. Once it does, it could veer off into the Atlantic, slog its way up the Florida Peninsula and dissipate, or head into the Gulf.
In its 5 p.m. EDT report the National Hurricane Center (NHC) said Tropical Storm Isaac was about 180 miles south-southwest of San Juan Puerto Rico and winds were holding 40 mph. It was heading to the west northwest at 16 mph, and NHC projections showed it passing to the south of Puerto Rico before turning and heading up west of the Florida Keys.
NHC said it was also following Tropical Storm Joyce, located about 1,280 miles east of the Cape Verde Islands. It was packing winds of 40 mph and was becoming disorganized. NHC projections had it moving in the general direction of Bermuda.
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