As traders had anticipated, prices fell across the board Thursday. What some might not have expected was how severe the softening would be. All drops were in double digits and ranged from about 15 cents to nearly 40 cents.
The biggest losses tended to occur in the Northeast, while the smaller ones were concentrated in the MidContinent, Southwest basins, Rockies/Pacific Northwest and California markets.
“We might be seeing the beginning of a price rout,” one source said. Citing the combination of weak fundamental weather support, a bearish storage report, a big screen dip and the increased decline of load associated with a holiday weekend, there’s a good chance prices might see even greater slides on Friday, he said.
However, a Gulf Coast producer said to expect approximately the same amount of downturn, at least in his area. He reported that Henry Hub was already trading Thursday afternoon for the weekend in the mid $4.40s. That’s about 30 cents lower than Thursday’s Hub average, which was down about 30 cents from Wednesday.
Jibing pretty well with prior expectations, the Energy Information Administration said 81 Bcf was injected into storage during the week ending Aug. 27. The volume handily eclipsed the year-ago and five-year average numbers, and the screen fell just shy of 20 cents in response.
The market may be heavily discounting any likelihood of Hurricane Frances threatening Gulf of Mexico production, but some producers reportedly were evacuating nonessential workers at a few platforms Thursday. Shell confirmed that as a precautionary measure, it expected to evacuate about 175 personnel from its Ram-Powell, Ursa, Mars, Cognac and West Delta 143 locations during the day Thursday. Other employees remained on the platforms and no production was shut in, Shell said.
A marketer said he figured other producers were also evacuating nonessential platform and rig workers in the far eastern end of the Gulf production area “because they don’t have enough helicopters to take everybody off in a hurry” in case Frances surprises everybody with a quick veer westward after hitting Florida.
San Salvador was in the eye of Hurricane Frances Thursday afternoon with sustained winds of 114 mph reported, the National Hurricane Center said. A hurricane warning was in effect for the east coast of Florida from Florida City northward to Flagler Beach, including Lake Okeechobee, it said. The storm was rather slow in moving to the northwest at nearly 10 mph.
The federal agency also noted the formation of the ninth tropical depression of the season in the eastern Atlantic about 555 miles southwest of the Cape Verde Islands.
Weather 2000 continues to caution not to totally count out the possibility of Frances reaching the production area. “Hurricane Andrew [in 1992], simply as an example of trajectory, demonstrated how a storm in Frances’ vicinity, eventually reaching above 25°N latitude could still be a major Gulf threat, so with Frances currently still well below 25°N, nothing should be ruled out for a few more days yet. Coincidentally, last week was the 12-year anniversary of Andrew’s devastating strikes on Florida and Louisiana,” the consulting firm said in an advisory Thursday. It calculated the odds of Frances “eventually transversing somewhere into the Gulf of Mexico (even if [the] very northeastern Gulf)” at 65%.
Reinforcing the current highly bearish mood of traders, three pipelines — Northwest, TGT and Texas Eastern — announced new restrictions on storage injections (see Transportation Notes) due to nearly full facilities limiting their operational flexibility. Northwest’s order for interruptible customers to take their balances to zero at its Jackson Prairie facility will add what a spokeswoman said was “less than 100,000 dekatherms” of extra supply into the Rockies/Pacific Northwest market over the next week.
Other than the remote potential of Frances, there’s nothing in sight to stop further price slides, an intrastate Texas marketer said. Cash got a little weaker relative to the screen, he noted. Electric utilities in Texas aren’t buying much gas “because it’s just not as hot as usual,” he said.
A Northeast trader had a similar perception, saying gas would be a hard sell for the weekend because his region is expecting highs not exceeding the low 80s then.
The Weather Channel (TWC) certainly thinks so, saying cold fronts will be moving into both the Northeast and Midwest. And of course, the not terribly hot already South will be cooled further as Frances begins to show up. And the West will be cooling off to five to 20 degrees below average from the Great Basin to the northern high Plains through Labor Day before temperatures start to rebound, TWC said.
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