A broad and pervasive influx of cold Canadian air that is forecast to invade portions of the country this week was enough to prompt double-digit gains in both natural gas physical and futures markets on Tuesday.
Gains were widespread, with all but a couple of market points enjoying increases of anywhere from a dime to 30 cents or more. New England and the Mid-Atlantic advanced the most, and the average overall national rise was 22 cents.
Futures couldn't quite keep pace with the exuberant cash market, but October did manage to add to Monday’s rally, even jumping above psychological resistance at $4 for a short period. The front-month contract ended Tuesday’s regular session up 10.8 cents to $3.984, and November scurried higher by 10.8 cents as well to $4.035. October crude oil gained 9 cents to $92.75/bbl.
The first major metropolitan area to feel the cold will be Minneapolis with other Midwest cities to follow. AccuWeather.com forecast that Tuesday's high of 74 in Minneapolis would drop to 56 by Wednesday and settle at 58 on Thursday. The normal high in Minneapolis in early September is 74. Chicago's 78 high on Tuesday was expected to ease to 76 Wednesday before dropping to 61 on Thursday. The Windy City's normal high this time of year is 78. Detroit's 79 high on Tuesday was expected to slide to 78 on Wednesday before falling another 10 degrees Thursday. The seasonal high in Detroit is 76.
AccuWeather.com meteorologists said, "The first general frost and snowfall of the year will spread southward over the northern Plains and northern Rockies of the United States through Wednesday." According to Brett Anderson, Accuweather.com meteorologist, "snow fell in parts of the Canada Rockies and Prairies Monday into Tuesday as the cold air pushed southward. Several inches of snow fell on Calgary, Alberta into Tuesday. Another dose of snow will hit the area on Wednesday."
AccuWeather.com added that "The rounds of snow will spread southeastward across a large part of Montana and into northern and western Wyoming, the Black Hills of South Dakota and part of the Nebraska Panhandle through Thursday, [and] some of the eastern slopes of the mountain ranges in the region will pick up as much as six inches of snow.
Accumulating snow is likely to stop short of reaching Denver with this outbreak of cold air. However, it is not out of the question some snowflakes are seen in northeastern Colorado Thursday night. The chilliest air since last spring will push southward from Canada and across the northern and central Plains, Midwest and the eastern slopes of the Rockies, prior to the middle of September," said AccuWeather.com meteorologist Alex Sosnowski last week about the upcoming weather. This chilly air mass will continue to expand south and east throughout the rest of the week, but the coldest air will remain locked up over the Canadian Prairies and northern Plains."
Midwest market points responded accordingly. Gas on Alliance for Wednesday delivery gained 10 cents to $4.04, and Chicago Citygate gas for Wednesday came in 15 cents higher at $4.06. Deliveries on Michcon rose 17 cents to $4.10, and gas on Consumers rose 15 cents to $4.09. Wednesday gas at Demarcation gained 15 cents to $4.01.
Temperatures at eastern locations were expected to rise above seasonal norms, giving bulls a double whammy of potential heating load in the Midwest and cooling load in the East. AccuWeather.com predicted Boston's 69 high Tuesday would rise to 71 Wednesday and reach 77 on Thursday. The normal high in Boston is 74. In New York City Tuesday's 73 high was forecast to reach 78 Wednesday and make it to 84 on Thursday. The normal high in New York this time of year is 78.
Deliveries to the Algonquin Citygates rose by 37 cents to $3.11, and packages on Tennessee Zone 6 200 L added 30 cents to $3.16. On Millennium, next day gas was seen at $2.70, 29 cents higher.
Gas headed for New York City on Transco Zone 6 vaulted 41 cents to $2.92, and deliveries to Tetco M-3 were seen 35 cents higher at $2.87.
Marcellus points were not lost in the day's gains. Parcels on Transco-Leidy added 38 cents to $2.62, and gas on Tennessee Zone 4 Marcellus gained 18 cents to $2.51.
Analysts see the day's gains at risk as storage injections are expected to continue at a blistering pace. Tim Evans of Citi Futures Perspective sees "a strong psychological lift from colder temperatures moving into the northern U.S. a day after Calgary dropped below the freezing mark and snow fell on the Canadian city, with the nearby futures adding another dime onto Monday's gains. However, we note early newswire survey results point to a consensus for something on the order of 87-90 Bcf in net injections into DOE storage for the week ended Sept. 5, a refill well above the 61-Bcf five-year average for the date.
"The high consensus figure does leave the market exposed to the possibility that a smaller injection would spark further buying, but we continue to see above-average storage refills continuing, even with the early heating demand generated off the cooler readings. That may make today's higher levels unsustainable in our view."
In an early release Kyle Cooper of IAF Advisors is looking for an injection in Thursday's storage report of 89 Bcf.
Monday's 8-cent advance and Tuesday's 11 cent rise pumped some life into a dying natural gas bull, but it's not off life support just yet. "Constructive day for the bulls; however, it is going to take a lot more to convince us that the bullish model has been revived," said Brian LaRose, an analyst at United ICAP. "For starters, we would like to see the new A=C objectives from $3.724 [July 29] exceeded. 0.618 a=c targets $3.944-3.984. [A full] a=c targets $4.057-4.122. 1.618 a=c targets $4.240-4345. Bulls have no case for gaining the upper hand unless these levels can be cleared," he said in closing comments Monday to clients.
Fundamental traders don't see any significant change in the trading landscape and recommend short positions. "This market put in a surprising show of strength [Monday] after posting some fresh three weeks lows in the overnight session. Since we saw no significant change in the short term temperature views, the market may be responding to some tropical wave formation off the west coast of Africa," said Jim Ritterbusch of Ritterbusch and Associates in closing comments.
"However, chances of cyclone formation appeared limited. The more likely impetus behind today's gains was a burst of short-covering when the market was unable to take out the mid-August lows. Regardless, we still see these lows as vulnerable by mid-week when the longs will likely be looking to exit the market ahead of another storage report that should bring another strong injection in comparison to the builds of around 60-64 Bcf seen within the five-year averages and a year ago. The dynamic of deficit contraction in large chucks will remain intact and short of a major disruption to production this fall, supplies should continue to increase at a much above normal pace. We are maintaining a bearish stance in quest of $3.65 after having suggested additions to short holdings above the $3.85 mark. We are still advising stop protection at the $3.92 level on a close only basis."
Weather forecasts warmed a bit overnight. WSI Corp. in its Tuesday morning outlook said, "The six-10 day period is not as cool as the previous forecast across the eastern two thirds of the nation. This is due in part to the period shift, but also model trends as well. Confidence in the forecast is considered average based on reasonably good model agreement. As usual, there are technical and timing issues to contend with, especially late in the period.
"Despite the trend in the forecast, there is a slight downside risk across the eastern U.S., focused into the Northeast. The western U.S. may run a little warmer."