Physical natural gas for delivery Thursday drifted lower in Wednesday's activity, with most points outside the Northeast trading with a 5-cent range of unchanged. In New England, a rise in forecast temperatures, combined with pipeline constraints, was enough to motivate buyers, but in the Mid-Atlantic mostly normal temperature forecasts worked to soften next-day prices.
Buyers had already anticipated a Southern California heat wave. At the close of futures trading an increase of nine-tenths of a cent in both the June and July contracts was enough to break the five-day losing streak. June settled at $4.367 and July finished at $4.371. June crude oil rose 67 cents to $102.37.
Searing temperatures in California prompted little in the way of a market response as buyers had loaded up prior to arrival of triple-digit temperatures. AccuWeather.com forecast that Burbank, CA's 99 on Wednesday would hit 102 Thursday before easing to 97 on Friday. The normal high in Burbank is 76 this time of year. Sacramento was expected to see its Wednesday high of 97 slip to 95 Thursday and 89 by Friday; the seasonal high is 80. San Diego's high of 97 was seen dropping to 94 Thursday and 85 by Friday. The normal mid-May high is 68.
"A heat wave will surge across California this week, as extreme and record-challenging heat grips the Los Angeles area by midweek," said AccuWeather.com's Kristen Rodman. "High temperatures will rise each day through Thursday, nearing records each and every day, [and] by midweek, records are expected to fall across Southern California."
AccuWeather.com colleague Ken Clark said the hot weather would "stay most of the workweek with records being challenged by Wednesday and Thursday. Around the Los Angeles area, temperatures are predicted to near the 100 F mark both Wednesday and Thursday. Some places will see their first 100 F temperatures of the year in the Central Valley and west of the mountains in Southern California."
"Prior to the heat actually arriving you were getting some [market] response in power and gas out here in the form of heat rates and spark spreads," said a San Diego-based trader for an independent power generating firm. "It's almost like buy the rumor and sell the fact. People bought ahead of the heat wave and now that it is arriving there is definitely selling into the heat itself."
He said he felt that prices at SoCal Citygate and SoCal Border would work lower over the balance of the week, and "from a power response there isn't much, and I think it will trickle through to the gas."
Next-day power prices made a nominal advance in the face of increasing loads. IntercontinentalExchange reported Thursday peak power at SP-15 rose by $4.41 to $69.36/MWh, and power into NP-15 gained $2.62 to $67.55/MWh. The California Independent System Operator predicted that Wednesday's peak power of 38,343 MW would jump to 40,087 MW Thursday.
Gas for next-day delivery at Malin fell 2 cents to $4.36 and gas delivered to the PG&E Citygates shed 4 cents to $4.96. Packages at the SoCal Citygates were up a penny at $4.87, and at SoCal Border points gas was seen at $4.58, down 4 cents. Gas on El Paso S Mainline rose 1 cent to $4.72.
The day's greatest gains were posted at Northeast points as forecasts of rising temperatures and capacity constraints raised demand and limited supply.
Iroquois Gas Transmission in a critical notice said receipt nominations were at capacity and sealed from further increases at interconnects with Algonquin, Tennessee and Dominion.
AccuWeather.com expected that Boston's high on Wednesday of 62 would be 60 on Thursday and reach 73 by Friday. The normal high in Boston this time of year is 65. In New York City, Wednesday's high of 70 was seen reaching 74 Thursday and slide to 70 on Friday, the seasonal high. Philadelphia's 69 Wednesday high was expected to jump to 83 Thursday before retreating to 72 Friday. The normal high this time of year is 74.
Gas at the Algonquin Citygates rose a hefty 24 cents to $4.06, and deliveries to Tennessee Zone 6 200 L gained 39 cents to $4.26. Gas at Iroquois Waddington was seen at $4.59, down 3 cents.
In the Mid-Atlantic, gas bound for New York City on Transco Zone 6 fell 13 cents to $3.21 and packages on Tetco M-3 Delivery lost a dime to $3.24.
Analysts are stewing on what the long-term implication, if any, is of sequential above normal-expectation storage builds that will be announced Thursday by the Department of Energy's (DOE) Energy Information Administration. "Although the updated weather forecast may have failed to insert a quick floor under the market, the larger issue remains the extent to which last week's third consecutive storage surprise exposed the vulnerability of the natural gas bulls," said Tim Evans of Citi Futures Perspective.
He thought Tuesday's decline might also have been "the market...bracing for Thursday's DOE storage report, with at least some estimates running in the 100-110 Bcf range, a step up from our model's projected 98 Bcf net injection, already more than the 83 Bcf five-year average for the date. In our view, a build of more than 100 Bcf would confirm that the background supply-demand balance for the natural gas market continues to weaken. Even without this further weakening, the near-term storage prospects look bearish enough."
If Evans' projections are correct, the year-on-five-year deficit would decline to 903 Bcf by the end of May. At present, the deficit is 982 Bcf.
If analysts' estimates are correct, Thursday's EIA storage report will bump up against or exceed the century mark. Houston-based IAF Advisors calculates a 99 Bcf injection, and Raymond James and Associates expects a build of 101 Bcf. A Reuters survey of 24 traders and analysts revealed an average 99 Bcf, with a range of 91 Bcf to 108 Bcf. Last year 99 Bcf was injected and the five-year average is for a 82 Bcf gain.
Storage is going full steam ahead in East Texas. Industry consultant Genscape reported that operators "have been injecting at a faster pace this spring. Storage injections averaged 1.0 Bcf/d in the past 30 days compared to 0.5 Bcf/d in the same period last year. Producing region storage inventory is currently 97 Bcf lower than last year for salt domes and 209 Bcf lower than last year for non-salt facilities. Balance of the summer of Henry Hub is currently trading over 13 cents discount to the winter strip," the firm said.