By the end of the four-day trading week ended August 28, bulls had clearly gained control with all high-traffic market points in the black and the NGI Weekly Spot Gas Average posting a healthy 11-cent rise nationally to $3.71.
Of individual actively traded market points Algonquin Citygates added the most with a 77-cent gain to average $3.27 and Perryville and Panhandle Eastern showed the smallest gains, 3 cents apiece to $3.96 and $3.75, respectively. All regions were solidly on the positive side of the trading ledger with the Northeast showing the greatest gain of 19 cents to $2.81 and the Midcontinent and South Texas at the low end with 6 cent gains to $3.85 and $3.87, respectively.
California and East Texas both gained 8 cents to $4.26 and $3.94, respectively.
The Midwest, South Louisiana and Rocky Mountains all added 9 cents to $4.04, $3.94, and $3.86, respectively.
September futures expired Wednesday at $3.957, up 14.9 cents from the August expiration. October futures during the 4-day week added 16.1 cents to $4.044, and on Friday added another 2.1 cents to $4.065. Traders were looking to see if the Thursday morning release of storage data for the week ending Aug. 22 by the Energy Information Administration (EIA) would prompt a move out of the $3.75-4.00 zone. The Wednesday expiration of the September contract gave traders little insight.
Expectations were for a build in the 78 Bcf area, well above last year's 65 Bcf increase and the five-year pace of 58 Bcf. The actual figure of 75 Bcf came in somewhat under industry estimates as Houston-based IAF Advisors calculated an 80 Bcf increase, and a Reuters poll of 27 traders and analysts revealed a 78 Bcf average with a range of 72-83 Bcf. Bentek Energy's flow model saw a somewhat smaller 76 Bcf increase and attributes the decline from last week's 88 Bcf entirely to increased power generation demand.
"Total U.S. demand increased 1.3 Bcf/d from the previous week, with power burn demand accounting for the entirety of the uptick. Burn rose to 28.5 Bcf/d on the week, the highest weekly power burn demand of the year," the company said in a report.
The 75 Bcf figure had some traders skeptical. "We had heard from 78 Bcf to 80 Bcf or thereabouts, and I think the market will hold $4 initially, but I don't think the market has a lot of strong support [above $4] at all," said a New York floor trader. "If we settle above $4 that might have some significance, but if we trade back down then we are looking at a trading range of $3.75 to $4.25."
Nonetheless the 3 Bcf shortfall was enough to fuel an advance that left the October contract solidly perched over the psychologically important $4 level. At the close, October was 4.1 cents higher at $4.044 and November had gained 3.2 cents to $4.101.
Phillip Golden, director of risk and product management at EMEX, said the storage report was "relatively flat" versus market expectations of 76-80 BCF. "The market is up slightly, continuing [Wednesday's] trend and suggesting that weather, rather than the storage report, is moving the energy market right now," he said. "Due to recent movements in the market, the balance of calendar year 2014 is now at the high end of the EMEX's expectations. However, as previously stated, EMEX believes there will be buying opportunities for consumers in the next six weeks, and businesses should be prepared to capture these dips in energy prices before winter arrives."
While noting that 2014 remains the strongest injection season in the past six years, Golden added that injections going forward could fall off the record refill pace, thanks in large part to the recent heat wave striking much of the country. "With what appears to be a late-onset summer, the potential for injection numbers to remain flat or decline slightly week-over-week exists and would be contrary to historical norms," he said.
Inventories now stand at 2,630 Bcf and are 490 Bcf less than last year and 518 Bcf below the five-year average. In the East Region 61 Bcf was injected, and the West Region saw inventories up by 9 Bcf. Inventories in the Producing Region rose by 5 Bcf.
Following the release of the storage data analysts saw the futures market capable of retesting Thursday's highs ($4.10) in the near term. "[T]he market's ability to post highest levels since July 17th improved the chart picture with the bullish momentum of the past couple of weeks capable of a re-visit by October futures to [Thursday's] highs of $4.10," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Thursday to clients.
"A renewed burst of strength could also develop off of continued warm temperature views that are now extending beyond the first third of next month. While we have emphasized that hot temperatures in September tend to pack limited pricing punch, a significant downsizing in storage injections on Sept. 11th will still be a force with which to be reckoned. With today's data, the supply deficit against five-year average levels has shrunk to 16.5% from a shortfall of around 50% that existed at around the end of last winter. Despite next week's expected warm-up, we still look for average weekly deficit contraction of about 1% that would keep storage on track to approach the 3.6 Tcf level by early November. Much of our forecast remains predicated on a continued quiet hurricane season that will accommodate production at or near record levels.
"Overall, we have shifted from a short-term neutral posture to a bearish stance as we suggest holding any short October positions established at around the $4.04 area today. We are advising stop protection above $4.20. But at the same time, we also suggest holding deferred bull spreads employing the December 2014 contract as long leg against spring 2015 contracts."
Other traders favor the buy side. Tim Evans of Citi Futures Perspective suggests working a buy order on the October contract at $3.68 with stop-loss protections at $3.48 should the order get filled.
In Thursday's trading physical gas for delivery Friday through Sunday was mixed as both buyers and sellers scrambled to get their deals done prior to the release of government storage data. Once again, New England and Mid-Atlantic points fell hard as near-term weather forecasts called for mild and temperate conditions. Broad market strength was unable to counter weakness, not only in the Northeast but also in the Gulf and Midcontinent. Overall, the market fell 10 cents.
Northeast and Mid-Atlantic prices posted a second straight day of declines as weather conditions turned mild and pleasant. The National Weather Service in southeast Massachusetts said, "High pressure will build in with drier weather and less humidity for tonight [Thursday] and tomorrow. Hurricane Cristobal will continue to bring dangerous surf and rip currents to the Cape and Nantucket tomorrow. Pleasant late-summer weather will continue on Saturday. A front will slowly move across New England late Sunday and Monday, bringing scattered showers and thunderstorms."
Temperatures Friday along the Eastern Seaboard were seen struggling to make it to seasonal norms. Forecaster AccuWeather.com predicted that Boston's high of 82 degrees Thursday would plummet to 70 by Friday and recover somewhat to 76 by Saturday. The normal high in Boston is 78 this time of year. New York City's Thursday high of 82 was expected to ease to 78 Friday and recover to 80 on Saturday. The normal late-August high in New York is 80. Washington, DC's Thursday high of 87 was anticipated to slide to 83 Friday before bouncing back to 87 on Saturday. The seasonal high in Washington is 85.
Gas for Friday and the weekend headed for New York City on Transco Zone 6 dived 83 cents to $1.96, and deliveries on Tetco M-3 came in 62 cents lower at $2.01.
Northeast and Marcellus points weren't too far behind. Parcels delivered to Algonquin Citygates shed 17 cents to $2.75, and gas on Iroquois waddington slid 11 cents to $3.84. Parcels on Millennium were seen 21 cents lower at $2.17.
Gas at Transco Leidy came in 27 cents lower at $1.96, and parcels on Tennessee Zone 4 Marcellus dropped 21 cents to $1.95.
Prices at Midwest market points on Thursday suffered nowhere near the same price pressure as the East. Next-day gas on Alliance was unchanged at $4.01, and gas at the Chicago Citygates was flat at $4.01. Michcon next-day gas changed hands at $4.05, also unchanged.
Gulf prices held steady as a major source of supply was expected to return to service. "SONAT's South Section 28 Line has been returned to service, which will likely add about 180 MMcf/d of supply back into the Louisiana region and put downward pressure on SONAT basis," said industry consultant Genscape. "SONAT began accepting nominations for the ID1 cycle on Aug. 25th, [but] SONAT declared a force majeure on the Line on June 17th after detecting a line leak. Affected points included: Sabine to SNG, Sea Robin to Erath, Section 28 to AMOCO, Lake Larose, Bayou Crook Chene, and Erath to South Section 28 Line.
"In the 14 days prior to the force majeure, flows averaged 180 MMcf/d, reaching as high as 227 MMcf/d on gas day June 17. Following the conclusion of repairs, flows are expected to return to pre-event levels. Since this work has been completed and these locations have returned to service, three locations (Erath -- South Section 28 Line, Sea Robin -- Erath, Bayou Crook Chene) have seen a start to return to normal service.
"In the 14-days prior to the force majeure SONAT basis averaged ($0.03). On the day of the force majeure, basis shot up to $0.04, then averaged even with Henry Hub through the duration of the event. With nominations starting to appear again, Wednesday's trading sent SONAT basis back down to close at ($0.02)," the firm said.
Deliveries to Henry Hub for the Friday and the weekend added 3 cents to $4.02, and gas on Tennessee 500 L added 3 cents to $3.98. Deliveries to Transco Zone 3 added a penny to $3.99, and gas on Columbia Gulf Mainline was flat at $3.94. The Houston Ship Channel was down 2 cents at $4.00, and Katy was off 2 cents at $3.99.
The week's consumption of electricity could also lead to a relatively thin build in next week's report as well. The National Weather Service (NWS) for the week ended Aug. 30 predicts well above normal cooling requirements for major population centers. NWS calculates New England will endure 46 cooling degree days (CDD), or 24 more than normal, and the Mid-Atlantic will see 57 CDD, or 23 more than its seasonal tally. The greater Midwest from Ohio to Wisconsin should swelter under 68 CDD, or 34 more than its norm.
Forecaster NatgasWeather.com is looking for temperature patterns to prompt relatively lean storage builds for the next couple of weeks followed by plump increases going into the shoulder season. "The weather system moving through the central U.S. today will bring noticeable cooling and easing of demand, while the weather system departing the Northeast will also provide comfortable temperatures with highs in the 70s to lower 80s.
"The warm-up coming after this weather system departs is a bit tricky due to inconsistencies in weather models as they try to figure out exactly where cooler Canadian air will advance into the U.S. around Sept. 6-7th. There will be a noticeable blast of cooler temperatures over a big chunk of the U.S., but there is still uncertainty on how fast it will push into the eastern U.S.
"Next week's build will also likely be in the 70 Bcf range and very well could be the last one below 80 Bcf for the remainder of the year. As long as there remains strong potential for cooler Canadian air to push into the northern U.S. for the second week of September, we expect the markets to have limited upside potential as the return of 100+ Bcf builds will be looming."