Overall cash prices Thursday rose a penny on average, but the modest change belies regional swings. The Northeast plunged as pipeline supplies from the Canadian Maritimes returned, and southern California rose as the area remained in the grip of a heat wave.
The Energy Information Administration (EIA) reported a miserly increase of just 27 Bcf in storage inventories, a number widely anticipated, and futures eased. At the close of futures trading, October had retreated 2.6 cents to $3.037 and November had fallen 2.7 cents to $3.164. October crude oil surged $1.30 to $98.31/bbl on a firm equity market following Federal Reserve announcements.
Northeast traders reported that production from Sable Island was expected to ramp up into the weekend. "Sable Island [flow] is expected rise a little bit for tomorrow and then more on the weekend," said a Northeast marketer. "It's just more gas and what seems like not very much demand. [Northeast] prices started out and just fell. Gas was brought in from Canada to make up the shortfall, and now there will be less and less gas brought in.
"It was originally brought in from Maine on Portland Pipeline down to New England, but that will all change. You can't backhaul the gas in from western New York. Those pipes weren't designed to do that."
Quotes on Algonquin swan-dived 33 cents to average $3.38, and deliveries to Tennessee Zone 6 200 L fell 28 cents to $3.38 as well. Gas into Iroquois Waddington shed 14 cents to $3.38.
Other eastern points held firm. At Tetco M-3 gas for Friday delivery was flat at an average $3.09, and gas into New York on Transco Zone 6 eased a penny to $3.09. Parcels on Dominion rose a penny to $2.97.
California points were steady to higher as a heat wave continued to grip Southern California. Thursday's high of 78 in San Diego was expected to rise to 87 on Friday and 88 on Saturday, according to AccuWeather.com. In Los Angeles, Thursday's high of 86 was forecast to jump to 97 on Friday and 98 on Monday. The normal high at this time of year is 76 in San Diego and 84 in Los Angeles.
Deliveries to Malin gained 5 cents to an average $2.95, and gas at the PG&E Citygate fetched $3.45, or 3 cents more than Wednesday. At the SoCal Citygate next-day gas was steady at $3.37, and SoCal Border lost a penny to $3.27.
Forecasts of warmth also boosted Pacific Northwest prices. AccuWeather.com forecast that the high in Spokane, WA, Thursday of 80 would rise to 85 on Friday and 83 on Saturday. The normal high in Spokane at this time of year is 75.
Gas for delivery Friday on Northwest Pipeline Sumas averaged 9 cents higher at $2.86, and gas at Kingsgate was 6 cents higher at $2.86. At Stanfield, OR, Friday gas also gained a stout 7 cents to $2.90.
Midcontinent prices were mostly higher. NGPL Midcontinent Pool averaged 2 cents higher at $2.86, and gas on Oklahoma Gas Transmission added 2 cents to $2.80. NGPL Amarillo Line was higher by 4 cents to $2.94, and quotes on Panhandle Eastern were 2 cents higher at $2.84. Deliveries to ANR SW proved to be an exception, posting a loss of 2 cents to $2.80.
Futures traders saw the lean 27 Bcf build already in the market. "I think a lot of the number was already built in after the last three days' trading, said a New York floor trader. "We didn't have any momentum to go anywhere further."
The trader said the market was not demonstrating anything to make him feel that higher prices were in the cards. "I think if everything remains the same over the next few weeks, or even next week the market will come back off."
Traders were expecting a thin upper-20s Bcf build in the EIA storage report. A Reuters survey of 25 traders and analysts revealed a sample mean of 28 Bcf with a range of 19-39 Bcf. United ICAP forecast an increase of 27 Bcf, and Bentek Energy calculated a 23 Bcf increase. Last year, 80 Bcf was injected at this time, and the five-year average is for a 72 Bcf increase.
Some saw an even leaner build. "Our model, as adjusted for the impact of Hurricane Isaac, came up with a slightly lower 22 Bcf net injection for last week, which suggests some potential for a bullish surprise in Thursday's report, although that's more of a reason to be prepared to react than a basis for trading ahead of the data release in our experience," said Tim Evans of Citi Futures Perspective.
With high production levels continuing unabated, it's probably a positive that the industry grew demonstrated peak working capacity in underground storage caverns last year. According to the EIA from April 2011 to April 2012, Lower 48 state capacity increased 3 % or 136 Bcf, to 4,239 Bcf. (see Daily GPI, Sept. 13).
Since April, EIA estimated that 7.5 Bcf has been added to working capacity (to make for 4,246.5 Bcf currently), and another 32 Bcf could be added by the end of this year.
Sufficient storage overall, however, may not be all that important since regional imbalances may occur. Inventories currently stand at 3,429 Bcf, and with six weeks remaining in the traditional injection season, about 136 Bcf needs to be injected weekly if the 4,246 Bcf or "full" capacity is going to be reached.
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