All actively traded cash points recorded losses on gas for weekend and Monday delivery in Friday's trading. The physical market on average fell 13 cents with Northeast points enduring the greatest declines. Eastern and Gulf points were weak as well. At the close of futures trading October had shed 9.4 cents to $2.943 and November had dropped 8.1 cents to $3.083. October crude oil added 69 cents to $99.00/bbl.
Northeast marketers saw little incentive to buy gas for the weekend and Monday. One marketer said that if you need the gas Monday, you "might have to pay up if temperatures change. You are taking the risk, but you figure 'I am not wasting a lot of money on gas I didn't need for Saturday and Sunday, and even if I have to pay 50 cents over what the market was, that is still better than parking gas for a number of days,'" a Houston-based marketer said.
"We have one customer who wants Monday-only gas and said there is a 90% chance he will sell it back. He was thinking 'I don't want to pay way up for it on Monday, which is typically what happens,' so buy it now, get a lower price and if he has to sell it back to us for 20 cents less, that is preferable. He pays 20 cents to have it on reserve, basically," he said.
The marketer looks for longer-term prices to rise. "All the market area storage has to be full, but the production areas don't have to maintain the same levels. There is so much gas around. If we have a normal winter, and storage drops down to, say 1.2 Bcf, by the end of the season, then we have to put in 2.8 Bcf, roughly. That is like double what we had to inject this year. [Cash] prices are in the mid $3 range, so in order to get that gas in storage, prices will have to come up. Coal fired generation will have to come back on to free up natural gas," he said.
Getting the natural gas supply-demand equation back in balance could become a reality if the rig count continues its recent course. Baker Hughes said Friday that the U.S. gas rig count dropped by four rigs to 448 for the week ending Sept. 14, which marks the lowest level for active gas rigs in the country in 13 years.
Gas for weekend and Monday delivery throughout the East and Northeast fell. Quotes on Algonquin fell 33 cents to average $3.05, and parcels into Tennessee Zone 6 200 L skidded 38 cents to $3.00. Gas into Iroquois Waddington shed 14 cents to $3.24.
Weekend and Monday gas on Tetco M-3 fell 17 cents to average $2.92, and deliveries to Transco Zone 6 New York were 12 cents lower at $2.97. Gas into Dominion was down 12 cents to $2.85.
A Florida utility buyer lamented the high prices he was paying to move gas from the Gulf. "I don't understand the 25-cent basis of Florida Zone 3 to Henry Hub. It's ridiculous. Normal transportation would be about a dime."
He pointed out that compressor stations 9 and 10 were often points that got constrained if you did not have primary transportation. "The easy way out is to just pay the premium [Florida Zone 3], then you don't have to worry about getting constrained. It's a reliability issue," the buyer said. "West of stations 9 and 10 is more than the Henry Hub but less than Zone 3. We bought gas at stations 9 and 10 for about $2.99, but we have primary transportation," he said.
Weekend and Monday gas at Florida Gas Zone 3 was far ahead of Gulf points to the west. FGT Zone 3 fell 4 cents to average $3.16, and ANR SE tumbled 8 cents to $2.82. Tennessee 500 L came in 8 cents lower as well at $2.84 and deliveries at the Henry Hub shed 7 cents to $2.94. Weekend and Monday gas at Transco Zone 3 dropped 8 cents to $2.86, and gas at Tetco E LA was off by 9 cents to $2.84.
Futures traders admit they don't have a sense of what the market may do. "I don't have a good feel for the market. Traders may try to push the market above $3, but my gut feel is that we trade towards $2.75 to $2.80 next week," said a New York floor trader.
Analysts see the market having to reassess its recent gains. "Price action in this market appears reflective of a lot of pushing and pulling amongst the speculative community given an unusual contrast between fundamental market perceptions. Most of this week's trade has been driven upward by the reality of a huge contraction in the supply surplus within the past 2 Energy Information Administration storage reports," said Jim Ritterbusch.
Conversely, "a solid argument can be presented that supplies remain at record levels and are likely to maintain such status through the remaining couple of months of the injection cycle. Now that the sharply reduced supply overhang has been discounted via [last] week's spike of as much as 14½%, the market is being forced to reassess fundamental price drivers that remain characterized by the record storage."
All indications are that unless a tropical storm emerges, bulls aren't going to have a lot to hang their hats on weather-wise. In its six- to 10-day forecast Commodity Weather Group shows a ridge of below normal temperatures centered over Wisconsin and extending as far south as Arkansas and as far east as West Virginia. Out west above normal temperatures are expected in the Pacific Northwest. Trouble is temperatures are relatively mild in September and above or below normal readings are not likely to translate to significant energy usage.
"With the current outlook focused on the second half of September, typical demand levels for this time period are low, so national-level assessments continue to see little significant change despite forecast fluctuations," said Matt Rogers, president of the firm. "Regionally, we are seeing some hotter weather in Southern California [this] week with mid-90s for highs late [in the] week...We also see more low 90s in Dallas and upper 80s to low 90s in Houston [this] week, which is warmer than our outlook from [Thursday]. Otherwise the models show the blocking patterns getting undercut by more Pacific energy potentially in the 11-15 day, offering more variability to the otherwise cool-prevailing East pattern."
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