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Northeast Leads Widespread Losses; Futures Near Six-Month Low

Spot gas for delivery Wednesday followed the screen's lead along with forecasts calling for mild temperatures. Futures posted a near six-month low, and physical prices were lower across the board with only a few exceptions.

The Northeast and East led the day's declines with losses approaching 75 cents, and the Midwest and Great Lakes were solidly in the loss column as well. Overall, the market was down about 11 cents. At the close of futures trading, August had shed 2.1 cents to $4.204 after trading as low as $4.129 and September was lower by 2.5 cents to $4.194. August crude oil fell 13 cents to $103.40/bbl.

Forecasters in the Great Lakes called for mild temperatures and lower humidity. The National Weather Service in Detroit said, "Southeastern Michigan will remain influenced by northwesterly flow aloft in the wake of [Tuesday's] deepening low pressure system as the main middle to upper-level trough axis remains lagged back across the Great Lakes region. Temperatures are expected to range in the middle to upper 70s...with much drier humidity."

AccuWeather.com forecast that Tuesday's high in Milwaukee of 79 degrees would recede to 74 Wednesday before slipping to 71 Thursday. The normal high in Milwaukee for early July is 80. Chicago was also expected to see a high of 79 Tuesday and drop to 74 by Wednesday before creeping up to 76 Thursday. The seasonal high in the Windy City is 85. Detroit's 80 high on Tuesday was forecast to slide to 75 Wednesday and rebound slightly to 77 Thursday. The normal high in Detroit is 84.

Analysts calculated a healthy reduction in Midwest demand. "Cooler weather has driven down demand in the Midwest. Midwest demand averaged 8.2Bcf/d for the past week compared to a higher level of 9.0 Bcf/d in the previous week," said industry consultant Genscape. "Weather forecasts are expecting the cooler than normal weather to continue throughout this week. Chicago Citygate prices traded lower for [Tuesday] at $4.35/MMBtu compared to the $4.52/MMBtu in the previous week."

A Michigan marketer did not mind at all that current purchases had fallen below their July index gas. "We are definitely below our [Henry Hub plus basis] index gas, and we paid $4.34 on Consumers and $4.36 on Michcon. We have bought a lot of storage gas already, and if we liked the price we could fill our customers storage now, but that is not the plan. What would happen if prices went still lower and the customers start complaining?"

Gas for delivery Wednesday on Alliance fell 11 cents to $4.23, and at the Joliet Hub Wednesday parcels were seen at $4.24, down 10 cents. At the Chicago Citygates next-day gas changed hands at $4.26, off 9 cents. Gas on Michcon came in a dime lower at $4.34, and gas on Consumers fell 12 cents to $4.33.

The greatest declines were seen in the Northeast and Mid-Atlantic. Gas delivered Wednesday to the Algonquin Citygates plunged 71 cents to $3.42, and gas at Iroquois Waddington fell 5 cents to $4.27. Deliveries to Tennessee Zone 6 200 L shed 68 cents to $3.41.

Gas bound for New York City on Transco Zone 6 fell 73 cents to $3.14, and parcels on Tetco M-3 skidded 57 cents to $3.03.

Producing region quotes were mixed. Deliveries on ANR SW added 3 cents to $4.12, and gas at NGPL's Midcontinent Pool also added 3 cents to $4.08. On OGT next-day packages were seen at $4.01, down 6 cents, and on Panhandle Eastern Wednesday deliveries shed 2 cents to $3.96.

Power generators can expect milder conditions if near-term weather forecasts are correct. "[Tuesday's] six-10 day period forecast continues to trend cooler over MISO, PJM, and the Northeast, but is hotter over ERCOT early to-mid period in response to model timing changes with regards to a highly anomalous cold frontal passage," said forecaster WSI Corp. in a Tuesday morning note to clients. "Confidence in the forecast is considered near average standards as models appear to be handling circulation across the Northern Hemisphere well, but there will likely still be some timing issues with a frontal passage.

"There are some warmer risks across the Northwest Basin in response to a highly amplified building warm ridge. Slight cooler risks are in store across portions of the East and later over ERCOT under a highly anomalous digging cold trough."

"Expectations for cool patterns across the upper Midcontinent next week are conjuring up images of some continued strong EIA [Energy Information Administration] storage builds to be issued at least out to the 24th of this month," said Jim Ritterbusch after Monday's 18 cent free-fall. "As far as this week's data is concerned, we will be looking for a 96 Bcf injection, a number downsized only slightly from last Thursday's release. We find it difficult to envision a figure capable of reversing this sharp price plunge of the past three weeks. Violation of our expected support at the $4.29 level appeared to open the gates for [Monday's] downside extension.

"Next technical support develops at about the $4.15 level, and we will expect a test of such by mid-week. Although production was a bit stronger than we expected, industrial offtake continues to fall short of the pace that might be implied by the near-record high equities and some recent steady U.S. manufacturing indications. Consequently, the market is pricing in some additional deficit contraction that would appear to be setting up an end of October supply of around 3.5 Tcf, a stock generally viewed as adequate assuming sustainable up-trends in production through the upcoming fall and winter periods."

Tom Saal, vice president at INTL FC Stone, in his work with Market Profile contends that "[Monday] was a 'trend day' Market Profile structure. [It] infers an exhaustion pattern reflecting continuous selling (long liquidation by speculators). Typically, the trend day comes at the end of the move and the short-term trading strategy is the to fade a lower opening today, at least to unchanged." He expects the market to test Monday's value area at $4.260 to $4.200 followed by a test of $4.373 to $4.361. "Eventually" the market is expected to test $4.387 to $4.343.

"Back year's, Cal'15, Cal'17 & Cal'19, continue to be oversold...buyers be ready," he said in a note to clients.

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