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Weak Northeast Drags Market Lower; Futures Recover Off Session Lows

Physical natural gas traded Tuesday for Wednesday delivery fell 4 cents on average as higher prices in the Midwest, Northern Plains and Rockies, along with steady California prices were unable to offset $1-plus declines along the Eastern Seaboard. Futures prices staged a modest rebound as noon weather updates called for a healthy dose of cold temperatures by mid-month. At the close December was higher by 2.1 cents to $3.466 and January had gained 2.7 cents to $3.551. December crude oil dropped $1.25 to $93.37/bbl.

Wednesday deliveries in Boston and New England took it on the chin as forecasters called for a mid-week warmup possibly sending temperatures into the 60s. "After the coldest morning of the autumn so far, temperatures will rebound 30 to 40 degrees to above seasonable levels by Thursday," said AccuWeather.com meteorologist Alex Sosnowski. "Temperatures started the day Monday in the low-30s around the city, but in the northern and western suburbs dropped well down into the 20s.

"Highs are projected to reach the upper 50s on Wednesday, which is a tad above normal. By Thursday afternoon, temperatures are likely to surge into the 60s. Another cool front will approach the area Thursday with some rain. The front will be swept away by blustery and chilly conditions later Thursday night and Friday."

Falling next-day power prices offered power generators little incentive to make gas purchases for Wednesday generation. IntercontinentalExchange reported that Wednesday peak power at the New England Power Pool's Massachusetts Hub dropped $6.52 to $37.00/MWh and peak power deliveries to the PJM West Interconnect retreated $3.34 to $35.31/MWh.

ISO-New England predicted falling peak loads. Tuesday's peak load was anticipated to reach 17,400 MW, but Wednesday was forecast at 17,000 MW and by Thursday peak load was seen at 16,810 MW.

Next-day gas at the Algonquin Citygates shed $1.12 to $3.68, and gas into Iroquois Waddington dropped 17 cents to $3.60. Gas on Tennessee Zone 6 200 L fell 79 cents to $3.83.

Locations farther south didn't fare much better. On Dominion, next-day packages came in at $3.05, down 9 cents, and at Tetco M-3 gas for Wednesday changed hands at $3.20, down 16 cents. Gas headed for New York City on Transco Z 6 fell 19 cents to $3.25.

The extended selling at eastern locations was not felt on the West Coast as power prices firmed and power loads held steady. IntercontinentalExchange reported that peak next-day power at NP-15 rose $1.41 to $43.90/MWh, and power at SP-15 added $2.17 to $46.52/MWh. The California Independent System Operator predicted that Tuesday's nominal peak load of 30,254 MW would ease slightly to 30,176 MW Wednesday.

Gas for delivery Wednesday at Malin gained a penny to $3.48, and packages at the PG&E Citygates slipped a penny to $3.73. At the SoCal Citygates, Wednesday gas was quoted at $3.68, flat, and gas at the SoCal Border was up a penny at $3.55. Deliveries on El Paso S Mainline came in at $3.56, unchanged.

Futures weather bulls got a mid-session boost as updated weather forecasts showed an extended cold surge hitting the eastern half of the country. 12ZModelRuns.com in its noon update showed temperatures as much as 10 to 20 degrees below normal across the eastern half of the country for days nine through 14.

The forecast change to colder temperatures notwithstanding, top analysts see a major shift in the supply/storage dynamic. "This market has violated $3.40 support [Tuesday] morning and would appear to be poised for more as little assistance is being provided by the weather factor. Weekend updates suggesting much milder and broader temperature patterns out to about Nov. 18th are now being stretched by some forecasters across the entirety of this month," said Jim Ritterbusch of Ritterbusch and Associates in a morning note to clients.

"As a result, it is back to the drawing boards as far as early season supply is concerned. While a sustained deficit against last year had been widely assumed as recently as a week ago, such a development has now been brought into question by the much-above temperature trends that have been forthcoming from a myriad of weather forecasters. These views carry major bearish implications for storage reports to be released beyond Thursday's data. Releases on the 14th, 21st and 28th all appear vulnerable to some unusually bearish data if consensus of temperature forecasts proves valid."

Morning weather forecasts turned a little milder, but next week is up for grabs. WSI Corp. in its Tuesday morning six- to 10-day outlook said, "[Tuesday's] forecast is warmer over the south central U.S. and not quite as cool on the West Coast compared to [Monday's] forecast. Forecast confidence has slipped a bit today with considerable spread developing in the models next week.

"Several ECMWF [European model] operational members, most notably the operational, drive an impressive polar shot into the Midwest/East next week and close off an upper low over the Northeast. This solution was rejected in favor of the GFS [Global Forecast System] ensemble which was not nearly as cold."

The recent down-moves have technical analysts versed in Elliott Wave and retracement analysis working overtime to figure out the market's next moves. "[We] peg $3.412-3.411-3.407 as ideal support for a wave b correction down from $3.869," said Brian LaRose, technical analyst with United ICAP.

"Peg $3.287-3.253-3.239-3.216-3.207 as the lowest levels consistent with any bull market correction down from $3.869. Fail to carve out a bottom into one of these support candidates and the A=C objectives from $4.429 become our next downside targets. 0.618 a=c cuts at $3.066. [A full] a=c cuts at $2.569."

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