Physical natural gas traders sensing that Thursday's storage report might just have some bearish consequences sold early and sold often as they attempted to get deals done before the release of government storage figures.
Only a handful of points rose, and losses of just over a nickel were widespread. The biggest drops occurred in New England and the East, but the Gulf Coast, Midcontinent and Great Lakes regions were all in the loss column as well. Overall, the market fell 10 cents. The 10:30 a.m. EDT storage report by the Energy Information Administration for the week ending Sept. 12 showed an increase of 90 Bcf, well above historical averages, but widely predicted by market observers. Prices nonetheless tumbled as soon as the number was released, and at the close, October was off 10.3 cents to $3.910 and November had shed 10.2 cents to $3.975. October crude oil fell $1.35 to $93.07/bbl.
Friday prices in the Great Lakes and Midwest fell a few pennies as weather forecasts called for temperatures to struggle to make it to seasonal norms with the potential for load-killing rain into the weekend. "Chicago is facing a mostly clear weekend with the threat of some disruptive thunderstorms on Saturday,' said AccuWeather.com's Katy Galimberti. "After cooler air settled into the region during the week, there will be a gradual warming during the weekend with a peak on Saturday. Temperatures will rise from the mid-60s into the 70s by Friday. Skies will remain clear for Friday, making for ideal conditions for those with any outdoor plans. Saturday will see clear skies and temperatures into the mid-70s with breezes during the day. However, thunderstorms could develop into the afternoon and evening."
Chicago's Thursday high of 64 is expected to reach 70 by Friday and 76 by Saturday. The normal high for Chicago this time of year is 75, according to Accuweather.com. Detroit's Thursday peak of 69 was seen sliding to 67 Friday but rebounding to 79 Saturday. The seasonal high in the Motor City is 72. Indianapolis' Thursday high of 71 was predicted to reach 74 Friday and climb to 80 on Saturday. The normal mid-September high is 76 in Indianapolis.
Friday parcels on Alliance were off by 3 cents to $4.04, and packages at the Chicago Citygates eased 3 cents to $4.04 as well. On Michcon, next-day deliveries fell 2 cents to $4.10, and on Consumers parcels changed hands at $4.08, down 3 cents. At Demarcation, gas was quoted at $3.99, down 5 cents.
Eastern and New England prices took the biggest hits and were pummeled to the tune of double-digits as power loads were forecast to ease going into the weekend and next-day peak power declined.
The New York Independent System Operator forecast that Thursday's peak power load of 19,007 MW would fall to 18,081 by Friday and reach only 17,646 MW by Saturday. ISO New England forecast Thursday's peak load of 15,720 MW would drop to 14,710 MW Friday and slide to 14,150 MW Saturday.
IntercontinentalExchange reported that on-peak power deliverable to the PJM West terminal Friday fell $1.58 to $35.42/MWh, and at ISO New England's Massachusetts Hub next-day peak power slid $2.54 to $30.54/MWh.
Gas for Friday delivery to the Algonquin Citygates fell 18 cents to $2.46, and on Iroquois Waddington next-day parcels dropped 15 cents to $3.22. On Tennessee Zone 6 200 L gas for Friday delivery was quoted at $3.40 down 12 cents.
Gas bound for New York City on Transco Zone 6 fell 36 cents to $2.11, and packages on Tetco M-3 were seen 37 cents lower at $2.07.
Gas for Friday delivery on Transco Leidy fell 32 cents to $2.02, and Friday deliveries to Tennessee Zone 4 Marcellus shed 37 cents to $1.87.
Friday gas into southern California fell as load-killing rains were expected to crush power usage. "Demand in the Desert Southwest and possibly Texas will decline as the remnants of Hurricane Odile move into the region from Baja," said industry consultant Genscape.
"The storm is expected to generate torrential rains and flooding, which may cause some demand destruction in the res/comm sector, as well as cooler temperatures. Genscape's WECC Term group's weather forecast expects daily temperatures between [Thursday] and Sunday to average in the mid-80s (versus seasonal norms in the low 90s), with daytime max temps in the low 90s (versus low 100s from last week).
"The region was hit by a similar event just two weeks ago when the remnants of Hurricane Norbert caused midweek demand to decline to as low as 2,112 MMcf/d. Genscape models expect demand [Thursday[ and [Friday] to fall to 2,200 MMcf/d, roughly 200 MMcf/d less than the month-to-date average. While the storm system is anticipated to lose some strength as it makes landfall, NOAA weather models indicate it could move into Texas by this weekend."
Gas on Kern River Delivery was seen 6 cents lower at $4.19, and gas at the SoCal Citygates skidded 9 cents to $4.46. At the SoCal Border, next-day parcels were seen at $4.22, down 6 cents, and on El Paso S Mainline next-day gas retreated 9 cents to $4.30.
Prior to the release of storage data, futures traders were expecting a hefty build. "I'm hearing a pretty big number, about 90 Bcf," said a New York floor trader. "The range is anywhere from 82 Bcf to 101 Bcf, and that's a significant number considering last year was only 48 Bcf and the five-year average is 71 Bcf. I think if the number comes in anywhere near there, I think we'll see this market come off. I'm thinking if it comes in that way we'll see a settle under $4, and then we are back in our [$3.75-4.00] range."
Others were also looking for an injection in the 90 Bcf area. Analysts at United ICAP forecast an 89 Bcf build, and Ritterbusch and Associates expected an increase of 95 Bcf. A Reuters poll of 29 industry cognoscenti revealed an average 90 Bcf with a range of 81-96 Bcf.
Bentek Energy's flow model calculated an 88 Bcf build, and the firm said, "Power burn demand fell drastically from the previous week, but an offsetting move in res/comm demand helped keep total demand from falling significantly, as U.S. average demand declined only 0.7 Bcf/d despite power burn demand falling 1.9 Bcf/d." Bentek said forecasts utilizing its supply-demand model diverged from the flow model "with the fundamentals pointing toward a stronger build week-over-week [93 Bcf] while the sample injections remained largely flat."
Once the 90 Bcf figure was released, October futures fell to a low of $3.897 and by 10:45 a.m. October was trading at $3.917, down 10.6 cents from Wednesday's settlement.
Traders noted that the market's recent excursion above $4 was short-lived, "and we are now back in the [$3.75-$4] range," said a New York floor trader. "I think we will settle under $4."
Tim Evans of Citi Futures Perspective said "there's no particular shock or surprise. However, the build was still bearish compared with the 71 Bcf five-year average level and leaves the door open to larger storage injections in the weeks ahead, as air-conditioning demand fades further."
Inventories now stand at 2,891 Bcf and are 401 Bcf less than last year and 444 Bcf below the five-year average. In the East Region 58 Bcf was injected and the West Region saw inventories up by 7 Bcf. Inventories in the Producing Region rose by 25 Bcf.
Gas buyers seeking to augment electrical generation across the broad Midwest Independent System Operator (MISO) footprint may have a relatively easy time near term if forecasts calling for cool, wet and windy conditions prove correct. WSI Corp. in its Thursday morning report said MISO would see "fleeting high pressure support[ing] fair and seasonably cool conditions across a good portion of the power pool [Thursday]. High pressure will depart during Friday, allowing a complex frontal system to bring some rain and storms back into the region during Friday into the weekend. Rainfall amounts may range either side of 0.25 inches.
"Meanwhile, a southerly flow ahead of the expected storm system will support much warmer and even slightly humid conditions. Cooler and drier high pressure should settle in behind this system late in the weekend into the start of next week. An increasing southerly flow between high pressure and a frontal system should drive up output levels today into Saturday. Output may peak upward of 6-7 GW. A northwest breeze behind the system may continue to prop up generation during the weekend, but output is expected to abate by Monday."