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Physical Gas Nets Broad Decline; Futures Streak Higher on ‘Reclassified’ EIA Data

Spot gas for Friday delivery continued to work lower in Thursday's trading as mild weather and a soft power environment pressured prices. Traders also made sure they got their deals done ahead of the release of Energy Information Administration (EIA) storage data.

Most points nationally fell anywhere from a couple of pennies to a dime. New England, Appalachia and the Mid-Atlantic were all lower, as were Gulf Coast points and the Midcontinent. The EIA reported a storage build of 105 Bcf for the week ending May 9, but when traders figured out that included an 8 Bcf reclassification, futures prices surged from an early decline to post hefty gains. At the close June had advanced 10.2 cents to $4.469 and July was up by 10.7 cents to $4.478. June crude oil slid 87 cents to $101.50/bbl.

The physical gas pricing landscape was pummeled by falling power prices and forecasts of weakening power loads as well as a temperate weather outlook.

IntercontinentalExchange reported that Friday peak power at the New England Power Pool's (Nepool) Massachusetts Hub fell $1.90 to $46.76/MWh and next-day peak power at the PJM Interconnect skidded $5.54 to $40.80/MWh.

Pricing points for power headed for California swan-dived. Next-day power at COB fell $26.55 to $34.25/MWh and Friday packages into Mid-Columbia fell $32.64 to $24.94.

Power loads were also forecast to decrease. Nepool forecast that peak power loads Thursday of 15,340 MW would ease to 15,310 MW Friday and 13,760 MW Saturday. The California Independent System Operator (CAISO) forecast that heat wave-induced peak loads Thursday of 40,724 MW would slide to 37,784 MW Friday.

Forecaster Wunderground.com predicted that high temperatures at eastern locations would gravitate towards seasonal norms. Boston's 77 high Thursday was expected to dip to 70 Friday and 69 on Saturday, not far from its normal high of 66. In New York City the Thursday high of 67 was seen holding for Friday before rising to 75 on Saturday. The seasonal high in New York is 71. Baltimore's Thursday maximum of 84 was predicted to plummet to 68 Friday and rise to 72 Saturday. The normal high in Baltimore for mid-May is 74.

Weather patterns across the country were active. Forecaster Kari Strenfel at Wunderground.com said, "An active weather system will continue to impact the eastern third of the country on Thursday. A cold frontal boundary will extend from the eastern Gulf Coast to the eastern Great Lakes [and] as this system interacts with a warm, muggy air mass over the Eastern Seaboard, widespread rain and thunderstorms will develop across a handful of states.

"Strong thunderstorms are expected to push across the Southeast, the Mid-Atlantic, the eastern Tennessee Valley and the Ohio Valley. These thunderstorms will be capable of producing damaging straight-line winds and large hail. Heavy rain associated with these thunderstorms could lead to flash flooding over the Carolinas, Virginia, West Virginia, Maryland, Pennsylvania and New York. Scattered showers will also be possible across the Mississippi Valley and the upper Midwest, while the majority of the Plains will stay clear of wet weather."

The expected active weather didn't keep quotes from heading lower. Next-day gas headed for New York City at Transco Zone 6 fell 8 cents to $3.13, and parcels on Tetco M-3 Delivery fell 8 cents to $3.16. On Dominion South, Friday deliveries were down 8 cents to $3.16, and on Columbia Gas, TCO gas was seen at $4.34, down 6 cents.

At the Algonquin Citygates, Friday gas fell 1 cent to $4.05, and gas into Iroquois Waddington shed 8 cents to $4.51.

Gulf Coast prices were off about a nickel. Deliveries to Transco Zone 3 fell 6 cents to $4.31, and gas on Tennessee 500 L eased 4 cents to $4.31. Gas on Columbia Gulf Mainline fell 5 cents to $4.27, and deliveries to the Henry Hub declined 6 cents to $4.35.

Futures traders had their hands full with the 10:30 EDT release of EIA inventory data. Heading into the report, analysts were expecting the first three-banger build of the newly minted injection season with more to come. Bentek Energy's flow model calculated a 108 Bcf increase, and Raymond James figured on a 101 Bcf build. IAF Advisors forecasted a 99 Bcf build, and a Reuters survey of 24 traders and analysts showed a sample mean of 99 Bcf as well. The range on the Reuters survey was 91 Bcf to 108 Bcf. Last year, 99 Bcf was injected, and the five-year pace is 82 Bcf.

There was also abundant conflicting data with storage refills pointing one direction and power burn data indicating a thinner build. Bentek's flow model showed an estimated injection of 108 Bcf, but its supply-demand model predicted a 95 Bcf increase. Bentek said its storage activity models showed "several fields recorded at or near their all-time high for a single week of injections for Bentek's history, including NGPL, Blue Lake, Southern Pines, SOCAL and PG&E. The strong storage activity gives the high-side risk to this week's forecast while the fundamentals, particularly Bentek's power burn estimates during the week, provide[d] the low-side risk."

The firm estimated that "power burn demand increased by 1.1 Bcf/d from the previous week, most of which was centered in the Southeast. However, Bentek's sample of storage fields in the Southeast contradicts the increased power estimates as total sample injections within the region rose 6 Bcf week-over-week, with the largest increase coming from Bentek's sample of salt dome facilities."

Once the figure was released, there was a moment of confusion among traders. The EIA reported a build of 105 Bcf which at first glance looked bearish, but that number also included 8 Bcf of reclassified gas leading traders to conclude actual gas going in the ground was closer to 97 Bcf, bullish.

"There was a reclassification to 105 Bcf, so initially off the bigger number, we made new lows, but once traders figured that the reclassification put it at 97 Bcf, we rallied and made new highs. We almost saw support and resistance at the same time, $4.25 on the downside and $4.50 on the upside,' said a New York floor trader.

Other analysts elected to focus on the 105 Bcf figure. "The market may be staging an upward technical correction after having fallen hard over the past week, but the weekly storage data was bearish, not bullish, a larger-than-expected 105 Bcf build that was well above the 83-Bcf five-year average for the period.  The build also implies a further weakening of the background supply/demand balance, which will give the market a better chance of reaching an adequate storage level ahead of next winter," said Tim Evans of Citi Futures Perspective.

Inventories now stand at 1,160 Bcf and are 790 Bcf less than last year and 959 Bcf below the five-year average. In the East Region 60 Bcf was injected and the West Region saw inventories up by 16 Bcf. Inventories in the Producing Region rose by 29 Bcf.

The Producing region salt cavern storage figure increase by 13 Bcf from the previous week to 126 Bcf, while the non-salt cavern figure rose by 16 Bcf to 358 Bcf.

Near-term weather forecasts show only nominal variations from seasonal norms. WSI Corp. in its Thursday morning six- to 10-day outlook shows normal temperatures throughout the country with some above-normal occurrences on the West Coast and southern Plains. Some below-normal readings were seen in the desert Southwest. "Today's forecast has trended cooler in the Midwest/East late in the period while generally warmer in the West. Forecast confidence is near to slightly above average, with good large scale model agreement through next week.

"Temps may not cool quite as fast in the Mid-Atlantic and Southeast later next week if the subtropical ridge holds, but the official forecast took a more aggressive stance on the next cold front set to drop down from Canada."

WSI Forecast that in the next 11 days, the high reading in New York would reach 76, somewhat above its norm of 72. Chicago was anticipated to see a high of 73, two degrees above its seasonal average.

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