Cash quotes overall on average were 7 cents higher Thursday, paced by double-digit, weather-driven gains at Northeast points. Eastern, Midcontinent and Rockies prices all gained as well.
The Energy Information Administration reported a build in natural gas inventories of an unexpectedly high 66 Bcf, momentarily energizing the bears, but at the closing bell it was bulls that came out energized as October had gained 6.3 cents to $2.748 and November had risen 5.2 cents to $2.919. October crude oil shed 87 cents to $94.62/bbl.
Rocky Mountain next-day gas took a cue from futures and posted gains. Observers are optimistic that at least a seasonal winter will prompt a healthy rally in natural gas prices.
"All these analysts are gnashing their teeth and fretting about production growth, but that is peanuts compared to what we lost [price-wise] because of the winter," said a Rocky Mountain producer. "We used 625 B's [Bcf] less gas last winter than what we averaged over the previous ten years. The NOAA [National Oceanic and Atmospheric Administration] said it was the fourth warmest winter in their 117 years of records. That's why storage is still too high -- sure production is growing slowly, but that's not the real problem."
He added that according to his figures "storage comps to last winter will get progressively much easier as we move through the upcoming winter. With normal winter temps this year, the surplus to last year could turn into a deficit by the end of winter-a prescription for higher gas prices."
Quotes at Opal added a hefty 7 cents to average $2.68, and deliveries on Northwest Pipeline Wyoming added 3 cents to $2.60. At the Cheyenne Hub Friday gas added 3 cents to $2.61, and on CIG Mainline parcels for next-day delivery were a penny higher at $2.58.
Next-day quotes at Northeast locations soared as high temperatures were forecast to be about 10 degrees higher. AccuWeather.com predicted Thursday's high in Boston of 84 would reach 93 on Friday. By Monday; however, highs are expected only in the upper 70s. Providence, RI's high of 83 Thursday was forecast to rise to 92 on Friday before slipping to 79 on Monday.
The National Weather Service in southeast Massachusetts said, "Summer heat [would] move into southern New England Friday as high temperatures reach 90 degrees across many locations. A cold front moves through Friday night followed by cooler but seasonable weather this weekend. Rain is possible Tuesday into Wednesday as a cold front with moisture from Isaac's remnants move into the region."
Friday gas on Algonquin soared 58 cents to average $3.57, and deliveries to Iroquois Waddington jumped 26 cents to $3.28. Tennessee Zone 6 200 L rose 50 cents to $3.50. Kinder Morgan Inc.'s Tennessee Gas Pipeline late Wednesday declared a critical day 1 operational flow order (OFO) effective 9 a.m. Thursday due to a force majeure event at its Compressor Station 249 in Carlisle, NY. The OFO affects all balancing parties downstream of Station 249 in zones 5 and 6 (see related story).
Quotes across the Midcontinent firmed. Deliveries Friday on Panhandle Eastern gained a stout 6 cents to average $2.59, and gas on Oklahoma Gas Transmission added 3 cents to $2.55. NGPL Amarillo Line was up 3 cents to $2.72, and ANR SW gained 3 cents as well to $2.58. NGPL Mid Continent Pool was up 5 cents to average $2.63.
Futures traders called the market's rise "strange" and perceived the market as "just drifting. It doesn't feel like anything," said a New York floor trader. "Prices have come off a little bit and I think some traders were taking profits on short positions ahead of the long weekend. A lot of traders won't be in tomorrow. I think traders waited for the number to come out and waited to see if they could do anything with it. When it wasn't working lower, they started buying."
As injections move into the shoulder season, the likelihood of hefty power burns recedes, and analysts hinted that further downside is likely as the storage surplus remains stubbornly high. Thursday's Energy Information Administration inventory report was expected to show little to no reduction in the storage surplus, an abrupt change from many weeks of surplus declines.
Last year at this time, 60 Bcf was injected, and the five-year average stands at 62 Bcf for the period. This week, the estimates suggested an actual increase in the surplus. United-ICAP forecast a build of 68 Bcf, and a Dow Jones survey showed an average 62 Bcf gain. Bentek Energy predicted a 64 Bcf increase.
Tim Evans of Citi Futures Perspective called for a build of 74 Bcf, and his model shows that "the year-on-five-year storage surplus would bounce to 369 Bcf as of Aug. 24 but then fall to a new low of 339 Bcf as of Sept. 7 before bobbing back up to 343 Bcf. Particularly when compared with the April-July period when the surplus was falling more dramatically, we'd rate the more recent actual and projected data as more neutral. That may allow a test of the downside like the one we've seen over the past month, but it also may not be bearish enough to prevent a recovery."
Evans' recommendation to buy October natural gas at $2.62 was filled Wednesday, and he suggests a stop-loss order of $2.32 to limit risk. "On a recovery back over $2.80, we would raise the sell stop to $2.47 instead," he said in comments to clients.
In its 4 p.m. CDT report the National Hurricane Center reported that Isaac, which had been downgraded to a tropical depression, was spawning heavy rains over North Louisiana. Winds were down to 35 mph.
NHC also said it was following Hurricane Kirk and Tropical Depression Leslie both of which were forecast to veer off into the central Atlantic (see related story).
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