Physical natural gas for Tuesday delivery on average rose a dime Monday, with gains widespread and only a handful of points in the loss column. Particularly strong were East and Northeast points, boosted by high next-day power prices and forecasts calling for Tuesday readings as much as 20 degrees above normal.
At the close of trading October futures had added 7.5 cents to $3.605 and November had gained 6.4 cents to $3.681. October crude oil fell $1.01 to $109.52/bbl.
In the Midwest, traders appeared content to make quick, early trades based on a strong screen.
“I think a lot of traders are attending a convention in Chicago and looked at the early screen and made their trades,” said a Houston-based trader, referring to the LDC Gas Forum Mid-Continent meeting (see related story). “They just came in and instead of working a position made their trades so they could attend convention activities. I think you will see the same thing tomorrow…
“Most people are doing their work at the convention on [cell phones] and whatever available screens they can find. Also, Friday’s sell-off was a little bit more than I expected and today’s gains may just be a reaction to that. The value [Midwest] was not in align with the screen or Henry Hub and so it was a natural comeback on that.”
Next-day gas on Alliance added a stout 17 cents to $3.83, while Chicago Citygates deliveries were 12 cents higher at $3.79. Gas on Michcon rose 11 cents to $3.88, and on Consumers, next-day deliveries changed hands at $3.99, up 17 cents. Gas at Dawn rose 4 cents to $4.03.
The biggest gains were posted at Marcellus Shale locations. Transco-Leidy Line surged about 63 cents to $1.97 and on Tennessee Zone 4 Marcellus next-day packages came in at $1.71, up 34 cents.
Outsize price rises were the rule in the Northeast and East as surging next-day power prices along with forecasts of Tuesday temperatures 10 degrees or more above normal provided adequate incentives to pay up for next day gas.
IntercontinentalExchange reported Tuesday power at the New England Power Pool’s Massachusetts Hub rose a hefty $13.33 to $47.83/MWh, while power into PJM West vaulted $29.22 to $69.64/MWh. Power at the New York Independent System Operator’s Zone G market point (eastern New York) rose by $12.56 to $53.65/MWh.
AccuWeather.com forecasters said Boston’s Monday high of 70 would climb to 81 Tuesday and gain another 11 degrees to 92 on Wednesday. The normal high in Boston is 67. In New York, a similar pattern was anticipated, with Monday’s high of 73 predicted to rise to 85 Tuesday and 90 on Wednesday. The seasonal high in New York is 78. Philadelphia’s high of 77 on Monday was anticipated to surge to 90 on Tuesday and to 93 on Wednesday. The normal early September high in Philadelphia is 72.
Tuesday packages at the Algonquin Citygates jumped 49 cents to $4.04, and gas at Iroquois Waddington gained 18 cents to $4.06. On Tennessee Zone 6 200 L, Tuesday parcels came in at $4.03, up about 48 cents.
Farther south gains were almost as impressive. Next-day deliveries on Dominion rose 23 cents to $3.48, with packages at Tetco M-3 gaining 29 cents to $3.77. On Transco Zone 6, next-day gas into New York City jumped about 26 cents to $3.85.
Longer term weather outlooks posted over the weekend trended toward cooling in the East and warmth in Texas and the West. Commodity Weather Group (CWG) in its six- to 10-day outlook shows below-normal temperatures east of a line from Ohio and South Carolina to New England, and above-normal temperatures west from North Dakota and East Texas to Southern California and Washington.
“The big story [Monday] is the additional deterioration of late-season demand for the Midwest and East in the six-10 day range as the models agree on a two-part cooling situation that targets the Northeast,” said CWG President Matt Rogers. “The second part delays the expected rebound of warmth into the Midwest for the 11-15 day, but the more reliable European ensembles still show a warm 11-15 view there…
“California sees some temperature fluctuation this week, but the forecast still shows more opportunities for 90s and even 100s for Sacramento and Burbank at times over the next two weeks. Above-normal temperatures also continue for Texas, with the most frequency of hotter levels (mid-upper 90s) for Dallas versus Houston.
No North American tropical threats are seen through at least another week , but the National Hurricane Center in its 5 p.m. EDT report showed Tropical Storm Humberto passing over the Cape Verde Islands.
In spite of recent market strength, futures analysts don’t see much of a chance for a long-term advance. “Fundamentally, it is difficult to make a bullish case for natural gas,” said Devo Capital President Mike DeVooght. “It seems that the greater likelihood is that we continue to trade in the low $3 to the low $4 range for the foreseeable future.” In a weekend report, he said the weekly storage figures were considered bearish because of a larger than anticipated build. “On a trading basis, we will hold current short positions.”
Trading accounts should continue to hold a short October position sequentially rolled from a short June, when June was trading at $4.35. DeVooght said to risk 25 cents on the trade. End-users are counseled to stand aside, and producers and those at risk for lower prices should hold a short October initially established at $3.75-3.95 as well as a short November-March strip initiated between $4.50 to $4.60.
Technical traders see market strength as setting up an opportunity to initiate short positions. “While we are looking for a multi-day correction of the move up from $3.129 to unfold, I would not be surprised to see minor support around $3.490-3.420, perhaps even an attempt to backtest the lower bounds of the upward sloping trend channel that was recently broken,” said United ICAP analyst Brian LaRose. “Short-term traders [should] consider using a back test as an opportunity to enter a short position. Buy stops above $3.720.”
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