Physical gas for Wednesday delivery weakened in Tuesday trading with eastern points taking hits of 25 cents or more. Only a few scattered points managed to trade in positive territory, and for the most part, locations were down by anywhere from a couple of pennies to a dime or more. On average the market was off nearly a dime.
Moderating weather and a softer power market kept sellers busy trying to find a home for incremental volumes. At the close of futures trading, June in large part mimicked the difficulties in the physical market, losing 7.6 cents to $4.358 and July was down 7.7 cents to $4.362. June crude oil rose $1.11 to $101.70/bbl.
Next-day prices all along the East Coast were pounded for double-digit losses as low demand prompted by moderating weather aided by a soft power price environment tugged the market lower. Pipeline conditions are deteriorating as too much gas is trying to find a home.
"Demand is way off and everybody is backing off, pushing gas back. Producers want to sell, but they can't because gas is backing up in our pipe. There are a lot of [high] pressure issues. It's kind of a Catch 22; you have a lot of gas, but you don't have any market for it just now," said a Houston pipeline veteran.
"This is going to affect people with baseload markets. If they can't get their gas into the pipe, then they can't sell it, and they have already sold it but they can't get it in because someone is overproducing. People who are trying to do it the right way are getting pushed back. We had a meeting this morning kicking some ideas around," he said.
One thing that is hard to kick around is the weather, and the East Coast saw moderating temperatures for Wednesday. Boston warmed up, but New York and Washington, DC, cooled down. Forecaster Wunderground.com predicted that the high in Boston of 56 Tuesday would rise to 71 on Wednesday and reach 73 Thursday. The normal high in Boston this time of year is 65.
Boston meteorologist and weather blogger David Epstein said, "The marine air remains in place for the day [Tuesday] and into tomorrow before more changes occur. Next up is a warm front which pushes out the cool ocean air and replaces it with more humid and milder conditions. So while tomorrow starts cool, by the afternoon highs will be back into the 60s. There might be a shower or two through Thursday as the warmer and more humid air takes hold, but the majority of any rain this week is going to fall late Friday and Saturday."
Wunderground forecast that New York's high of 75 would slide to 67 Wednesday before bouncing back to 74 on Thursday. The seasonal high in the Big Apple is 70. Washington, DC, should see its 92 high on Tuesday drop to 83 Wednesday and Thursday. The normal mid-May high is 75.
Next-day power prices at eastern points also fell. IntercontinentalExchange reported that next-day peak power into the PJM Interconnection dropped $16.35 to $46.80/MWh. New England Power Pool next-day power fell $1.08 to $42.92/MWh.
Wednesday gas at the Algonquin Citygates fell 28 cents to $3.82, and packages on Tennessee Zone 6 200 L fell 22 cents to $3.87. Gas at Iroquois Waddington shed 3 cents to $4.62.
Gas on Transco-Leidy weakened 19 cents to $2.14, and packages on Tennessee Zone 4 Marcellus shed 30 cents to $2.01.
Gas headed for New York City on Transco Zone 6 skidded 26 cents to $3.34, and deliveries to Tetco M-3 were off 18 cents to $3.34.
Futures traders saw the day's fifth consecutive loss as inspired by weather conditions requiring neither heating nor cooling load. Expectations are that prices may gravitate to $4.29 by the end of the week.
Analysts see Monday's retreat as indicating a broad shift of market perception. "The furthered weakness in this market reflects a significant shift in trader perception in which the bullish static influence of low absolute supply levels has been replaced as of last week by the dynamic influence of larger-than-expected supply injections," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Monday to clients.
"These storage builds are likely to prove larger than normal from here on out. While this Thursday's EIA report will likely show deficit contraction of only about 10-15 Bcf against averages, we feel that a much larger narrowing in the supply shortfall will be forthcoming beginning next week when triple-digit builds should become the norm rather than the exception. A strong bullish argument can still be presented since season-ending supply will still have difficulty meeting minimal pre-winter needs of around 3.5 Tcf. But supply concerns have been significantly tempered amidst increasing optimism that production will now begin accelerating into new record-high territory with the Marcellus spurring much of the upswing."
Weather forecasts call for conditions that are unlikely to have much impact on both usage and storage. Commodity Weather Group in its morning six- to 10-day forecast shows normal temperatures throughout the country with the exception of above normal temperatures in portions of the Texas Panhandle and a small section of northern California. "The short-range outlook continues to track an impressive late-season cool push that is dropping through the Midcontinent and offering lows in the 40s as far south as Dallas and Atlanta with lows in the 30s at peak intensity for Chicago. At the same time, impressive heat targets the West Coast with low 100s for Sacramento and Burbank on the hottest day, Thursday, with a 90-degree hit on Portland [Wednesday]," said Matt Rogers, president of the firm.
"Beyond this week, though, the modeling seemed slower today in re-warming the Midwest, South and East. The delay in warming may add a few heating degree days due to cooler overnights, but then we lose some cooling degree days too, so the changes today are generally minor in a low-demand situation. The West Coast and Southwest could start getting hotter again in the 11-15 day after a six-10 day break."
Tom Saal of INTL FC Stone in his work with Market Profile looked for the market to test Monday's value area at $4.475 to $4.445 before moving on and testing $4.535 to $4.509. "Eventually" he expects a test of $4.789 to $4.731.