Physical natural gas for Thursday delivery continued to slog lower in Wednesday's trading under a cloud of moderate weather forecasts and a weakening screen. Losses were widespread and only a handful of points in the Gulf, Midcontinent, Rockies and California made it to the black.
Overall, the market shed a nickel. Futures trading was equally uninspiring with September falling 3.8 cents to $3.786, and October dropping 3.1 cents to $3.805. September crude oil fell 70 cents to $100.27/bbl.
Uncooperative weather continues to dismantle the case for higher gas prices in the near term. "It might be the middle of what is historically the hottest time of the year, but it certainly does not feel like the dog days of summer across many places in the East," said AccuWeather.com meteorologist Courtney Spamer. "Cool and unsettled weather is expected to continue across the Northeast, Great Lakes and mid-Atlantic through the end of the week, [and] ups and downs with the temperature are typical of any season, but some have found it especially cold so far this summer.
Temperatures on Tuesday afternoon from New England to the Tennessee Valley dipped between 5 and 10 degrees below average for the end of July and the nighttime is expected to be "especially chilly, especially where the sky becomes clear. The temperature dipped to 37 F at Saranac Lake, NY, Wednesday morning, [and] low temperatures broke records across the South with a mostly clear sky Tuesday night."
Spamer noted that Wednesday morning "temperatures dipped into the 50s in much of Mississippi, Alabama and Tennessee, as well as in portions of Georgia and the Carolinas. A record low of 59 F was set at Atlanta Wednesday morning. The old record for the date of 61 degrees was set in 1936. A low of 57 F shattered the record low of 61 degrees set in 1994 at Birmingham, AL, Wednesday morning, [and] in parts of the Appalachians from Maine to North Carolina, lows were in the 40s."
From New England to the Great Lakes, next-day temperatures struggled to make seasonal norms. AccuWeather.com said Wednesday's high in Boston of 78 would reach 81 Thursday and 82 by Friday, the seasonal high. In Pittsburgh, Wednesday's high of 73 was seen at 77 Thursday and 81 Friday; the normal high is 82. Chicago's 70 high Wednesday was predicted to reach 79 Thursday and Friday, still short of the normal of 83.
Quotes at the Algonquin Citygates gained 2 cents for next-day parcels to $2.95, and at Iroquois Waddington, Thursday deliveries were quoted at $3.73, down 7 cents. On Millennium, next-day parcels changed hands at $2.22, down 7 cents.
Appalachia prices were steady to lower. Columbia Gas TCO came in at $3.71, unchanged, and gas on Dominion South fell 17 cents to $2.03.
In the Mid-Atlantic, gas bound for New York City on Transco Zone 6 dropped 7 cents to $2.24, and deliveries to Tetco M-3 shed 10 cents to $2.23.
Basis in the Marcellus continued to explode. Thursday deliveries on Transco Leidy plunged 69 cents to $1.49, and deliveries to Tennessee Zone 4 Marcellus dropped a gut-wrenching 56 cents to $1.44. Henry Hub was seen up a cent at $3.76.
The falling prices of Marcellus gas relative to the Henry Hub prompted Chesapeake Energy Corp., to warn Tuesday that its gas pricing differentials in parts of the Marcellus during the second quarter and into July were "significantly wider than forecast" (see Daily GPI, July 29). Realized gas prices after gathering, transport, and basis on production in the Marcellus northern region averaged $2.47/Mcf below Henry, versus 18 cents/Mcf in 1Q2014.
At some delivery points during the period, particularly at Dominion South, Texas Eastern Transmission Corp. M2, Tennessee Gas Pipeline Co. LLC Zone 4 and Transcontinental Gas Pipeline Co. Leidy, Chesapeake said basis discounts to Henry were between 92 cents/Mcf and $2.32/Mcf in the latest period.
Thursday's release of storage data by the Department of Energy's (DOE) Energy Information Administration is expected to show another large contraction in the storage deficit and builds nearly double historical averages. Last year 57 Bcf was injected and the five-year pace stands at 46 Bcf.
Tim Evans of Citi Futures Perspective is calculating an injection of 89 Bcf, and United ICAP is looking for an increase of 93 Bcf. A Reuters poll of 24 analysts revealed an average 93 Bcf with a range of 85 Bcf to 100 Bcf.
According to Evans,Tuesday's late-session expiration rally was prompted by short-covering and "by a warmer temperature forecast that looks like more than enough to to offset a shift in expectations for Thursday's DOE storage report for the week ended July 25 from roughly 90 Bcf to closer to 95 Bcf. The five-year average storage refill for the date is 45 Bcf.
"Warmer temperatures in the weeks ahead will boost air conditioning needs, with the higher power loads met by burning natural gas, limiting the volumes available to flow into storage." Evans predicted a build of 89 Bcf for Thursday's storage report, and if his forecasts are correct, the year-on-five-year deficit will shrink from its present 683 Bcf to 518 Bcf by Aug. 15.
"While the bearish storage trend remains open-ended, and could continue even beyond the end of the storage injection season, we also expect the market to encounter support sometime soon as it should maintain some premium to last year's price level based on the remaining deficit, in our view. There may also be a shift in seasonal focus, with the market focusing more and more on end-of-season storage levels and the prospects for winter."
Overnight weather forecasts warmed slightly.
"The latest six-10 day period forecast is not quite as cool as past forecasts across portions of the central and eastern U.S. on a day-to-day basis, though this is offset by the period shift," stated WSI Corp. in a Wednesday morning outlook. "The West is a bit cooler; confidence in the forecast is considered average based on rather good model agreement with the general relaxation or moderation of the large-scale pattern. Models have come into better agreement with regards to tropical impacts. Risks to the forecast include upside risk across the southern and eastern U.S., as well as the Northwest at least early in the period."
The National Hurricane Center in its 2 p.m. EDT report on Wednesday said the tropical disturbance 1,000 miles east of the Windward Islands could make it to Tropical Storm status, but the likelihood dropped to a 50% chance in the succeeding 48 hours.