The physical market weakened about 3 cents on average overall Thursday with modest gains posted in the Northeast and more prevalent weakness shown at eastern, Midwest and California points.
The Energy Information Administration reported a storage build of 28 Bcf, somewhat lower than expectations, but futures could only manage a feeble and temporary rise. At the close of futures trading October had slipped 1.9 cents to $2.776 and November had lost 2.7 cents to $2.910. October crude oil added 17 cents to $95.53/bbl.
Great Lakes buyers saw no need to rush to buy gas even as prices weakened. "We are waiting for prices to come down from these levels," said a Michigan buyer. "We don't understand what is keeping prices so high," he said.
The buyer may be waiting for more moderate conditions. "I am looking forward to the supposedly 70 degree temperatures we are going to get next week and overnights in the 40s and 50s. That should lower usage," he said.
Unlike the industry as a whole, the buyer said he had plenty of storage available to buy gas in the fall. An expected mild winter was also part of the buyers strategy.
The National Weather Service (NHC) in its long-term forecast showed above-normal conditions for half the country or more. For November, December, and January NHC showed above-average temperatures for a broad ridge extending from Maine to northeast Arizona and Montana to West Virginia. The remainder of the country was forecast to see average conditions, and only south Florida was anticipated to experience below-normal temperatures.
Friday deliveries on Michcon fell 2 cents to average $2.98, and gas on Consumers shed 3 cents to $2.96. Quotes at the Chicago Citygate were down a penny to $2.94, and packages on Alliance fell a penny as well to $2.96.
West Coast next-day prices slumped as electric power loads were expected to weaken. The California Independent System Operator predicted that Friday's peak load systemwide would fall to 37,655 MW from 38,595 MW Thursday.
Next-day California power prices also weakened. IntercontinentalExchange reported that day-ahead (DA) locational marginal prices (LMP) at NP-15 fell $5.97 to $32.75/MWh and DA LMP at SP-15 dropped $5.90 to $38.14/MWh.
At PG&E Citygate, gas for Friday delivery fell 7 cents to average $3.18, and quotes at Malin fell 2 cents to $2.77. Gas into the SoCal Citygate dropped 8 cents to $3.17, and gas at the SoCal Border fell 7 cents to $3.09. On El Paso S Mainline next-day gas tumbled 12 cents to $3.10.
Northeast points managed gains. Gas delivered to the Algonquin Citygate Friday rose 8 cents to $3.63, and parcels into Tennessee Zone 6 200 L gained 4 cents to $3.56.
Other eastern points weakened as well. Transco Zone 6 New York gave up 3 cents to $3.10, and Tetco M-3 was off 3 cents to $3.08. Deliveries to Dominion lost 2 cents to $2.87.
Going into Thursday's futures trading Wednesday's weak performance by the October contract had traders thinking the market would work lower following the release of Energy Information Administration (EIA) storage data almost irrespective of what the data showed. They were essentially correct as a seemingly supportive inventory report was unable to generate any kind of bullish enthusiasm.
Traders saw futures' weak performance as consistent with seasonal patterns. "There's no real reason for prices to rally. You are starting to see cooler weather creep in, a trader said. "I think you would have to see prices stay above $3 to generate interest to the upside."
A New York floor trader Wednesday said the market "feels heavy" and with the EIA inventory number coming out "we trade down to $2.68 tomorrow [Thursday]. I don't see anything too crazy with the number tomorrow," he said after Wednesday's settlement. "I think we are headed to $2.50 in the October contract, and it's just a matter of time before we get there. It could be a week or two weeks, but I think that is where October goes off the board."
On paper, estimates appeared wildly bullish, but lost production prompted by Hurricane Isaac shut-ins was fully factored in. Last year at this time a stout 62 Bcf was injected, and the five-year average stands at 60 Bcf. Citi Futures Perspective analyst Tim Evans forecast a build of 38 Bcf, and Ritterbusch and Associates was looking for an increase of 43 Bcf. Bentek Energy forecast a gain of 23 Bcf.
At a low 23 Bcf build Bentek admitted there was risk that the number could come in higher. "The potential for Hurricane Isaac supply interruptions to add considerable volatility to the Producing Region withdrawal figures puts the risk to the 23 Bcf forecast to the low side," Bentek said. "While this may seem drastic considering the previous week's strong super-60 Bcf build, the 23 Bcf forecast essentially puts the effects of Hurricane Isaac on par with the effects of a summer heat wave."
The National Hurricane Center in its 5 p.m. EDT Thursday report said it was watching a broad area of low pressure located just off the mouth of the Mississippi River for signs of development. It gave it a 40% chance of developing into a tropical cyclone in the succeeding 48 hours.
Elsewhere, Hurricane Leslie and Hurricane Michael were traversing the central Atlantic with little chance of hitting the U.S. mainland.
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