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Firm Cash Market Unable to Lift Futures; July Up a Hair

Natural gas for delivery Wednesday posted steady gains at most locations in Tuesday's trading. Locations impacted by high temperatures, such as the East Coast, saw the greatest gains, with some points advancing more than $1.

A few points in the West saw declines, but gains in next-day power prices made purchases of gas attractive. New England, the Mid-Atlantic and Marcellus all rose, but California prices eased. At the close of trading, July natural gas was up 0.2 cent to $4.709 and August was up by 0.4 cents to $4.722. July crude oil fell 54 cents to $106.36/bbl.

East Coast market participants had to put up with warm temperatures, high humidity, surging power prices, and reduced transportation. Forecaster Wunderground.com reported that Boston's Tuesday high of 85 degrees was forecast to rise to 87 Wednesday before easing to 82 Thursday. The normal high in Boston this time of year is 77. New York City's Tuesday high of 91 was forecast to hold Wednesday before falling to 83 Thursday. The seasonal high in New York is 80. Washington, DC's high of 95 Tuesday was expected to reach a sultry 97 Wednesday before receding to 89 Thursday. The normal mid-June high in Washington, DC, is 85.

Boston was forecast to see a heat index of 89 Tuesday, and Washington, DC, was expected to endure an oppressive 99.

The National Weather Service in New York expected active, unsettled conditions. "A cold front approaches tonight...and passes just to the south Wednesday. Weak high pressure will build into the region Thursday and Friday [and] a series of weak disturbances will move nearby the region over the weekend...before a another slow-moving frontal system impacts the area during the first part of the week. A west or even northwest flow will help boost temperatures across much of the County Warning Area...with sea breezes unlikely."

IntercontinentalExchange reported that Wednesday peak power into the New England Power Pool's Massachusetts Hub rose $12.67 to $67.46/MWh and peak next-day power into PJM surged $26.68 to $113.02/MWh.

Pipeline maintenance on Algonquin Gas Transmission (AGT) has also reduced supply. "Due to the previously posted maintenance required on its 30-inch Line between the Stony Point and Cromwell compressor stations, AGT has restricted interruptible, secondary out of path nominations that exceed entitlements, secondary out of path nominations within entitlements, secondary in path and approximately 36% of primary firm nominations sourced from points west of its Southeast Compressor Station (Southeast) for delivery to points east of Southeast. No increases in nominations sourced from points west of Southeast for delivery to points east of Southeast, except for Primary Firm No-Notice nominations, will be accepted," AGT said on its website.

Gas at the Algonquin Citygates jumped $1.46 to $7.18, and deliveries to Iroquois Waddington added 11 cents to $5.22. On Tennessee Zone 6 200 L, next-day packages were quoted at $5.55, up 49 cents.

Gas bound for New York City on Transco Zone 6 gained 14 cents to $3.94, and deliveries to Tetco M-3 rose 14 cents to $3.81.

Marcellus points were firm as well. Gas on Transco Leidy rose 8 cents to $2.05, and gas on Tennessee Zone 4 Marcellus gained a stout 28 cents to $2.05.

West Coast and California locations softened. Malin next-day deliveries were quoted at $4.63, down a penny, and gas at the PG&E Citygates eased 3 cents to $5.17. Gas at the SoCal Citygates shed a dime to $4.95, and packages at the SoCal Border were off 10 cents as well to $4.75. Gas on El Paso S Mainline fell 12 cents to $4.78.

Weather forecasts overnight turned a little cooler. WSI Corp. in its morning six- to 10-day outlook showed a ridge of below-normal temperatures centered over Kansas and Missouri and said, "[Tuesday's] six-10 day period forecast continues to trend cooler over the Plains in through the Northeast, as well as over the interior Northwest late in the period when compared to yesterday's forecast.

"Forecast confidence is close to average standards as a result of reasonable model agreement, [and] risk remains to the slight colder side over the eastern two-thirds under a digging cold trough. Slight warmer risks are in store over the West under an evolving +PNA [Pacific North American] type pattern."

In the short term, however, WSI said Midwest power generators can expect heat and humidity. "Variable temperatures are expected across the [MISO] power pool due to the expected unsettled weather. Northern areas may see temperatures vary in the 70s to mid 80s. Hot and humid conditions are expected across the lower Midwest through at least Thursday. Here highs may top out in the upper 80s to mid 90s along with heat indices well into the 90s. Unsettled weather may scale back some of this heat by the end of the week into the start of the weekend."

Observers saw Monday's decline as a reflection of a market that has gotten a little ahead of itself. "Our main takeaway from [Monday's] trade was that last Thursday's dramatic price up-spike was a bit of an overreaction and that even warmer temperature forecasts will not be able to spur much of a price advance in this market," said Jim Ritterbusch of Ritterbusch and Associates. "Although July futures failed to decline toward our preferred buying point of $4.64 in today's trade, we feel that such a development is a high probability during the next couple of sessions. The market may also be attempting to bake in another triple-digit storage increase that would further narrow the supply deficit against both last year and the five-year averages."

Trading opportunities could become more likely as summer progresses. "Otherwise, we are viewing this market as one that will be seeing greater and more disbursed price volatility following an exit from the shoulder period. The July-August summer phase will bring daily adjustments to the short-term temperature views that will be packing much more pricing punch. Furthermore, we look for physical pricing to lift this week as hot temperatures set in across the upper Midcontinent. Finally, we can see some additional rolling of speculative shorts out of the July contract ahead of next week's expiration."

Analyst Alan Lammey of WeatherBELL Analytics sees July futures fluctuating at and around $4.70 as "the market continues to weigh the supply-demand fundamentals against the storage refill season, which is lagging behind by a very large measure. In fact, as of last week, the EIA [Energy Information Administration] showed that natural gas stocks are 727 Bcf less than year-ago levels and 877 Bcf below the five-year average. With temperatures across the U.S. beginning to move into a phase of generally hotter conditions from July through September, weekly storage injections will be soon facing an uphill battle, which is bullish from the overall supply perspective."

From a technical perspective, Lammey calculates that "key resistance for July gas futures is seen at $4.73, followed by $4.85, $4.88 and $4.91. "If violated, look for a further advance up toward the next major resistance areas of $4.852, $4.93 and $5.00. On the downside of the spectrum, key support resides at $4.68, followed by between $4.65 and $4.61, while $4.55, $4.47 and $4.43 become the next lower areas of target support. If the latter is violated, the next major areas of support reside near the $4.36 to $4.30 zone," he said in Tuesday morning comments to clients.

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