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Super-Sized New England Gains Fuel Advance; Futures Add 6 Cents

Physical natural gas for delivery Tuesday vaulted higher Monday, fueled in large part by a number of capacity constrained points in New England. At the close of futures trading February had advanced 5.9 cents to $4.427 and March was higher by 4.6 cents to $4.382. February crude oil fell $1.03 to $99.29/bbl.

Gains were widespread and only a point or two fell into the loss column. The Midwest was about a dime higher, and eastern locations scored double-digit advances. California points were up a few cents. Gas for delivery at New England and eastern points scored the day's biggest gains as cold air was forecast.

The National Weather Service in southeastern Massachusetts said an Arctic air mass continued to spread across southern New England Monday and would remain entrenched over the area for the rest of this week “with a renewed surge of Arctic air for this weekend.”

A “weak clipper low” was to bring scattered snow showers or flurries New Year’s Evefollowed by dry weather New Year’s Day.

“A potential Nor’easter may arrive Thursday and Friday...with heavy snow and wind possible."

Gas into the Algonquin Citygates jumped $16.01 to $24.65, and deliveries to Iroquois Waddington rose by $5.89 to $11.40.

Farther south gains were also impressive. On Transco-Leidy, Tuesday parcels were seen at $3.60, up 40 cents, and Dominion rose 18 cents to $3.68. Gas at Tetco M-3 Delivery rose 32 cents to $4.37 and Transco Zone 6 to New York City Tuesday came in at $6.05, up $1.54.

Midwest gas buyers reported some anxious holiday moments.

"It's kind of scary leaving work on Christmas Eve knowing that projections show you don't have enough gas and you are just hoping that nothing shuts down and it does warm up like the weatherman says. You know how trustworthy they are,” said a Midwest utility buyer.

He admitted that the weather warmed up as forecast but "you're sitting at work wondering if we are going to make it or not. We were under an OFO with Northern [Dec. 24] and maxed out on the pipe. We would have had to turn on our LNG [liqufied natural gas] plant, and you don't want to call people out on Christmas Eve...

"It was bitterly cold in the morning and warmed up to 25 degrees or so overnight. We are running 250,000 Dt on days like that."

Prices across the Midwest advanced more than a dime at some spots as forecasts called for temperatures well below normal. Wunderground.com predicted that Monday’s high of 17 in Chicago would reach only 20 Tuesday before warming up to 26 on New Year's Day. The seasonal high in Chicago is 32. In Minneapolis, Monday's bone-rattling high of 5 was seen falling to 1 degree by Tuesday before making it back to 5 on Wednesday. The normal high in Minneapolis is 24. Des Moines, IA's Monday high of 20 was expected to hold for Tuesday before falling to 13 on Wednesday; the normal is 31.

Gas for delivery Tuesday on Alliance added 10 cents to $4.83, and the Chicago Citygates rose 9 cents to $4.87. Quotes at Northern Natural Ventura gained 11 cents to $4.86, and Demarcation changed hands at $4.81, up 11 cents. ANR SW added 4 cents to $4.35.

California prices were also firm. Deliveries to PG&E Citygates rose by 2 cents to $4.64 and gas at the SoCal Citygates rose by 4 cents to $4.64. Deliveries to SoCal Border points added 6 cents to $4.53, and El Paso S Mainline added 9 cents to $4.56.

Futures traders are looking for prices to not move much higher. "I think we'll hold a range of $4.30 to $4.45 over the rest of the week. The weather is getting a little soft, a little colder, but nothing below normal," said a New York floor trader.

Longer term weather forecasts continue cold well into January. Commodity Weather Group (CWG)  in its Monday six- to 10-day forecast showed the entire country below normal with the exception of California and the desert Southwest.

"While some of the cold this week has been delayed or disrupted by storm activity and cold front timing changes, the big picture from Friday is still colder due to a series of impressive events dropping down both this week and next in this current pattern," said CWG President Matt Rogers.

"The Midwest should see the biggest impacts, but the South and East have colder risks to the forecast than what we currently show based especially on the European operational and ensemble modeling for the six-10 day. Some of the coldest air of the winter so far threatens the Midwest by early next week.

“Meanwhile, the models are in major disagreement for the 11-15 day, with huge debate about the future of the Alaskan ridge. We favor a cautious approach here with the risk of perhaps more temporary oscillations versus any major changes."

Risk managers don't see natural gas prices advancing much further. "Fundamentally, we feel there is not much upside above the mid $4.00 level in natural gas," said DEVO Capital Management President Mike DeVooght. "We would use rallies above the mid $4.00 level as an opportunity to add to forward sales.

"Natural gas settled slightly lower on the week. Moderate temperatures and hedge and technical selling as we approached the mid $4 level helped to cap the rally started mid-November. The expiring January contract was able to settle at a level not seen since 2011. The weekly gas storage draw was large but was right in line with expectations and failed to be a market mover."

DeVooght advised trading accounts to hold short February $4.50 calls at 20 cents. Hold short March futures at $4.40-4.50, he said in a weekly note to clients. End-users were counseled to stand aside, and producers and those with exposure to lower prices were advised to hold the remainder of a short November-March strip at $4.50 to $4.60 and sell the April-October strip at $4.30 to 4.40. The April-October strip is currently at $4.201, he said.

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