Physical and futures prices both registered double-digit losses on the final day of bidweek Tuesday as cash prices caught up with the late-session futures slide on Monday, and futures just kept trekking lower Tuesday as the market couldn’t shake the ongoing dynamics of ever-increasing storage surpluses and forecasts of mild weather expected to prolong the pounding market bulls have been taking.
Cash prices across the country were down an average of 23 cents, posting greater losses in many instances than free-falling futures. At the close of futures trading March had sunk 21 cents to $2.503 and April had shed 17.8 cents to $2.638. March crude oil fell 30 cents to $98.48/bbl.
The stage was set for a raucous bidweek when announcements were made last week by Chesapeake Energy and Conoco of production cuts. “Prices went up and they kept going up,” said a Midcontinent marketer. “There was no connection between the physical traders and the financial traders. A lot of the physical traders were just scratching their heads.”
Despite last week’s gains in every region but the East, the production cuts are not having much of an impact on the overall price level and the market’s surrounding fundamentals. “I definitely expect February indexes to be lower than January. January indexes on Midcontinent pipes were $3, and I expect February indexes on pipes such as OGT to be about $2.50,” said a Midcontinent marketer.
A Rocky Mountain producer indicated that he had placed earlier hedges on a large portion of his company’s gas production at $5, but “our financial manager makes the call as to whether to take the index price or try and guess the weather.”
He added that in the current market you were “damned if you do and damned if you don’t [take the index], and I would be tempted to take it. Bentek is talking about a $1 handle on gas shortly [see related story]. It’s a tough call. Sometimes we’ll do half our unhedged gas on the index with the idea that we’ll only be wrong on a portion of our total and only for a while. You can rationalize it away. There’s no good choices here.
“I wish more companies would cut their drilling. For the longest time Chesapeake said they weren’t going to take one for the team and they finally did.”
Buyers on the other hand were enjoying the weak prices. “It’s nice when prices go down during bidweek,” said a southwest utility manager. “We buy a lot of our gas on index, and we just let the market go where it wants to go. We’ve been on the opposite end of this years ago when we were paying $10/Dth for gas instead of $2.50. We buy gas primarily from the San Juan Basin off El Paso or Transwestern. In general it’s a bearish market and we expect it to be bearish in February. A lot will depend on what happens with hydro supplies in the balance of the spring and that will determine just how long it stays bearish in the West. If there is no hydro and it gets warm, prices will pop a little bit, but if there is plenty of hydro, gas prices will be depressed for a long time to come.”
In daily trading Gulf prices were down more than 20 cents. ANR SE and Henry Hub gas were off approximately 20 cents, and Columbia Gulf Onshore was quoted about 23 cents lower. Trunkline E. LA slumped a few pennies short of 30 cents.
The Midwest was not spared the carnage in the cash market either. Chicago Citygate was quoted at around $2.60, down a couple of dimes, and at Ventura prices skidded almost a quarter to just over $2.50.
In the Southwest deliveries on westbound pipes saw price declines as well. SoCal Citygate was quoted almost 22 cents lower.
Futures traders cited warm East Coast weather as driving prices lower. “It seems to be all weather-related. There’s nothing to move this market in the upward direction,” said a New York floor trader. “I think people are putting on new short positions because there is really no reason to buy it at this point. Everything is leaning to the downside. We came in and prices were about 12 cents lower, and it was just a creep down to 20 cents lower. The high of $2.689 was made overnight and not during the day.”
The trader added that there had been not much in the way of follow-through announcements of production cuts. “Everyone is saying ‘so much for that.’ If you see this market edge up, you have to look for a spot to sell it.”
Analysts echoed the floor trader’s sentiments regarding production cuts. Last week’s announcement of production shut-ins by Chesapeake and others was fine as far as it went, but in the view of one analyst, many more need to be forthcoming if the market is going to stabilize or develop any serious upside momentum.
“[T]his is also a market craving some additional headlines regarding output reductions and has thus far has seen little assistance in this regard this week,” said Jim Ritterbusch of Ritterbusch and Associates. “We are maintaining a view that output cuts from other producers could possibly be delayed as a result of the past week’s upside price relief. We also feel that the market will be forced to face the reality that the end-of-season supply trough in a couple of months will not be appreciably affected by the output reductions.”
Bulls and bears may be back on the dance floor to the same old tunes of a near-term technical bottom offset by continued perceptions of ever-increasing storage surpluses. WSI Corp. of Andover, MA, in its 11-15 day outlook predicts above-normal temperatures for the northern Plains and beyond from Wisconsin to northern California. Below-normal temperatures are forecast for a broad region from Virginia to Texas. The remainder of the country is expected to see normal temperatures.
“Above- and much-above-normal temperatures are forecast over the interior western U.S. and the northern Plains. Below-normal readings are expected to encompass Texas and the southeastern U.S. Anomalies as cold as 6 degrees below normal are anticipated along the Gulf Coast,” the forecaster said in a morning report.
WSI did offer the caveat that low confidence was placed in the forecast as “notable differences develop between the models late in the period. Temperatures may trend cooler along the West Coast and warmer over most of the central and eastern U.S. than currently forecast if the European ensemble model comes to fruition. The European ensemble model depicts a more zonal pattern redeveloping over North America in mid-February.”
It’s the weather, stupid, but production numbers also have a tale to tell about low gas prices. Lower 48 state gas production climbed to a record 72.61 Bcf/d in November 2011, up 9% from 66.6 Bcf/d in the same month a year ago, according to the Energy Information Administration’s (EIA) latest production report issued Monday (see Daily GPI, Jan. 31). The biggest gains came from outside the traditional gas patch in states like Pennsylvania, West Virginia and Ohio. Output from that group went up 20%, from 17.19 Bcf/d in November 2010 to a record 20.66 Bcf/d in November 2011.
Â©Copyright 2012Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.
© 2021 Natural Gas Intelligence. All rights reserved.
ISSN © 1532-1231 | ISSN © 2577-9877 |