The late onset of summer heat in the Northeast continued to prop up most physical natural gas prices in the region on Tuesday for Wednesday delivery as values across the rest of the country slumped. Over in the futures arena, traders who were obviously unimpressed with the Northeast heat and discouraged by the hearty natural gas storage refill rate pushed the October natural gas futures contract well below $4 in a move that marked the largest drop for a front-month contract in half a year.
Coming off of the long holiday weekend, October futures slid 17.5 cents to close Tuesday's regular trading session at $3.890. The sell-off was attributed to traders treating the futures market as it is intended -- ignoring the now and focusing on what's ahead.
"Natural gas futures are coming under selling pressure despite current warm temperatures as traders anticipate the cooling trend to follow," said Tim Evans, an analyst with Citi Futures Perspective. "The corresponding storage injections for the week ending Sept. 5 may be the closest to the five-year average since April, and yet this would still be a neutral result in seasonally-adjusted economic terms."
In addition to the expected easing in temperatures in the not-too-distant future, Ritterbusch and Associates' Jim Ritterbusch said natgas futures on Tuesday could have been peeking over into the oil arena and that "some of the selling" in the "heavy liquidation" on Tuesday in natural gas could have been "in sympathy with the large oil losses."
Ritterbusch added that as "the temperature factor diminishes in importance amidst [Tuesday’s] chart deterioration, we look for the large speculative entities to sustain a renewed interest in the sell side of this market as this week proceeds. Tropical storm threats to the GOM remain negligible with the hurricane season shifting into its declining phase next week. All in all, [Tuesday’s] sell-off that negated one weeks’ worth of gains has reinforced our bearish inclinations. We still expect fresh lows in nearby futures with the $3.65 area still on the table as a downside possibility when looking out across about a two-week time window."
With temperatures soaring well into the 90s again in a number of northeastern population centers, the prices of gas for Wednesday delivery soared in the region. Transco Zone 6 NY jumped 60 cents on the day to average $3.08, while Tetco M3 increased by 45 cents to $2.88.
Marcellus Shale market points also recorded sizeable gains but remained depressed when compared to the rest of the market. Tennessee Zone 4 Marcellus added 38 cents to average $2.38, and Transco Leidy-Line added 40 cents to $2.41, while the benchmark Henry Hub averaged $4.01 on Tuesday.
A Houston-based pipeline industry veteran said his firm wasn't engaged in any meaningful capital projects that might alleviate the cavernous price disparities between Marcellus market points and the rest of the market, but instead "was trying to figure out how to squeeze out more capacity on the pipeline, and trying to get more gas through to the markets that need it."
When queried as to whether there might be projects on the drawing board that might alleviate the Marcellus price differentials, he told NGI "There's not a lot of things being done in 2014 other than a few projects, and the majority of projects will be ones that take gas out of the Utica area. I think Marcellus prices are going to stay where they are for the time being."
Outside of the Northeast, declines were in lockstep nationally, with most points for Wednesday delivery dropping from a couple of pennies to a little less than a dime.
Looking to the temperature forecast, it appears that the heat for much of the East will remain for the rest of the week. "The combination of temperature, humidity, sunshine, light winds and other factors will push AccuWeather RealFeel temperatures from Atlanta and Savannah, Georgia, to Philadelphia and New York City past the 90-degree mark most days this week, said AccuWeather meteorologist Alex Sosnowski. "The weather pattern has the potential to bring the warmest week of the summer, considering the average of high and low temperatures."
According to AccuWeather’s Paul Pastelok, long-range weather expert, "The unseasonable warmth and high humidity will continue through Friday over much of the South." He added that the very warm and humid conditions will expand northward again before the middle of the month. "Near or just beyond the middle of the month, we expect a strong push of chilly air to expand southeastward from Canada," Pastelok said.