The cash market advanced nearly 8 cents on average Wednesday, buoyed by an exuberant screen and a strong finish by the expiring October contract. The gains were widespread with some regions posting a double-digit advance. The Great Lakes, East and California all vaulted higher. At the close of futures trading October had zoomed 9.9 cents to end at $3.023 and November added 11.0 cents to $3.215. November crude oil shed 56 cents to $91.37/bbl.
Great Lakes marketers were a little taken aback at the day's strong gains. Short-term weather may come to soften prices, they said. "The weather is weird, and being what it is could turn prices around," said a Michigan marketer. "It's been cool here and there probably has been some space heating going on. An earlier forecast called for temperatures in the 70s next week, but they have since backed off on that, mid 60s to upper 60s."
The marketer wasn't aware of any particular price level that would spark an interest in risk management. "We firmly believe in not fixing the price. We've seen where that has not necessarily been a good idea. If it's going to be warmer than normal, and if storage is going to be full as it looks like, there could be downward pressure on prices."
The National Weather Service (NWS) last Thursday updated its longer term forecast. For December, January, and February it showed above normal temperatures north of a sinuous line from Montana to Arkansas to North Carolina. Most of the remainder of the country is seen as normal with some below-normal patches in South Texas and south Florida.
The Farmer's Almanac is predicting a split winter. "For the coming season, we're predicting that winter will return to some -- but not all -- areas. We think it will be a winter of contraries, as if Old Man Winter were cutting the country in half. The eastern half of the country will see plenty of cold and snow. The western half will experience relatively warm and dry condition. In other words, as in the political arena, the climate this winter will render us a nation divided."
Quotes on Michcon averaged 8 cents higher at $3.02 and Consumers came in at $3.05, up by 9 cents. Thursday deliveries to the Chicago Citygates gained 4 cents to $2.99 and gas on Alliance was higher by 9 cents to $2.98.
Eastern points rose also. Algonquin Citygate gas gained 7 cents to average $3.18 and deliveries to Iroquois Waddington added a stout 16 cents to $3.28. Thursday gas into Tennessee Zone 4 Marcellus jumped by 24 cents to $2.67.
Points in Texas posted solid gains as well. NGPL TX OK came in up 7 cents at an average $2.92, and Thursday gas at Katy was quoted a nickel higher at $2.91. Deliveries to the Houston Ship Channel rose 3 cents to $2.90 and Transco Zone 1 gained 7 cents to $2.87. Gas at El Paso Permian rose 4 cents to $2.88 and Transwestern was quoted 6 cents higher at $2.82.
Pacific Gas and Electric likes to keep its pipeline inventory between 4,000 MMcf/d and 4,450 MMcf/d, and should conditions fall outside those limits an Operational Flow Order may be called. Next-day prices advanced in California as inventory forecasts worked down to the lower end of desired operating ranges. PG&E predicted Thursday's pipeline inventory at 4,063 MMcf/d but Friday's was anticipated to fall to 3,999 MMcf/d.
Thursday deliveries to Malin added a nickel to $2.89 and gas at the PG&E Citygates rose 5 cents to $3.48. At the SoCal Citygates next-day gas was quoted at $3.32, up 5 cents and at the SoCal Border parcels changed hands at $3.21, up 4 cents. On El Paso S Mainline Thursday gas came in at $3.21, a gain of 2 cents.
Futures traders did not see the rally as having any staying power. "I think it's going to be short lived. I could see November trading up to the $3.25 to $3.30 area, but I don't think we will get much higher than $3.30 in November," said a New York floor trader. "All the last two days has been is short covering. Any lack of weather and this market is Sayonara," he said.
With just six weeks left on the traditional injection season, traders Thursday will get a chance to fine-tune their storage estimates once the heating season begins. Consensus estimates center around a final season-ending inventory of about 3,950 Bcf, close to the 2011 record, but with current inventories at 3,496 Bcf, just 76 Bcf weekly will be required to reach a near record starting winter inventory.
Ritterbusch and Associates is looking for a stout 82 Bcf increase and a Reuters survey of 30 traders and analysts showed a sample mean of 76 Bcf with a range from 69 Bcf to 83 Bcf. Industry consultant Bentek Energy predicts an increase of 82 Bcf also. Last year 104 Bcf was injected and the five-year average stands at 76 Bcf.
INTL FC Stone Vice President Tom Saal in Miami in his work with Market Profile said Wednesday morning the "very short-term looks bullish." Market Profile attempts to identify value areas, which can act as price "magnets" in that they will typically be filled in subsequent days or subsequent weeks of trading. A value area of the profile is defined as a price range one standard deviation about the mode. One standard deviation is approximately 70% of the entire trades that took place in that given time period, and the market has a tendency to want to test prior value areas, especially the prior day's value area.
For Wednesday's October contract expiration before the open, Saal said to look for the market to test Tuesday's value area between $2.890 and $2.864 and then test $2.970 to $2.940. Saal nailed Wednesday's trading but a third value area at $2.742 to $2.704 was not tested. Saal may look for a test of value areas, but others don't see any trend to prices.
"According to the wave count, I can't tell you that this market has a lot of conviction one way or the other. There is no trend," said a Washington, DC-based broker. "The buyers are praying for a sell-off, and now you are close to the upper end of the range. We'll be back over $3 with the contract change on Thursday, and a lot of the buyers are saying 'forget that, I want $2.' And the producers say they want $4. I think that has been part of this lack of trend."
The Northeast is expected to cool off. Elliott Abrams, a meteorologist with AccuWeather.com, said after the Northeast warms up Wednesday from a pattern of southwest warming winds, "a cold front will then move through to cause some showers and in places a thunderstorm...followed by cooler air. The front will stall in Virginia or North Carolina, and a low-pressure area forming along the front can then bring rain to the Middle Atlantic states on Friday."
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