The cash market for weekend and Monday delivery overall tumbled on average of just over a dime Friday as traders cited a lack of weekend demand and Monday temperatures in key metropolitan areas were forecast to reach no more than seasonal norms. Most points were lower, but California points were particularly hard hit.
Futures managed something of a “dead cat bounce” and recovered a portion of Thursday’s losses. At the close of futures trading July had added 2.5 cents to $2.299 and August was 1.7 cents higher at $2.344. July crude oil fell 72 cents to $84.10/bbl.
Both southern and northern California were hit with double-digit declines. Forecaster AccuWeather.com predicted a pattern of moderating temperatures for the Los Angeles area over the weekend with Friday’s high of 78 receding to 71 on Saturday before rising to 75 on Sunday and 79 Monday. The normal high for Los Angeles this time of year is 76.
SoCal Gas on its Envoy website reported a decreasing amount of gas used for power generation. Thursday’s 2,563 MMcf was forecast to drop to 2,415 Friday, 2,288 Saturday and 2,314 Sunday before returning to 2,593 Monday.
Gas delivered to PG&E Citygate was nearly 15 cents lower, while SoCal Citygate and Southern Border were off closer to 20 cents.
Malin was quoted more than a dime lower, and El Paso S Mainline was down more than 20 cents.
A midwestern utility reported they were taking advantage of the lower prices and putting gas into storage. “We rolled a lot of gas over and had to pay a penalty, but we’re injecting and trying to keep our electric customers happy,” a gas buyer said.
“The weather has been pretty constant, but the electric loads have not. Our customers do not baseload much through us, just peak shaving.”
The buyer said they had three tiers of gas purchases, gas bought on 30-year contracts, monthly gas purchased at index, and daily market purchases if necessary.
The buyer said they saw no reason to change their storage purchases in spite of last year’s mild winter. “We just fill ‘er up and be ready for winter. You don’t have two winters in a row like last year.”
The buyer said their actions were often contrary to the market. “We look to buy gas on for the weekends because a lot of times the prices have dropped and we have to make up imbalances that have been created by the need to service electric customers. That’s what we did this weekend,” he said.
Declines in the Midwest were not as pronounced as those in California. Northern Natural Gas Ventura, Alliance and Chicago Citygate were all down more than a dime. Consumers and Michcon were both off nearly a dime.
Gulf points also weakened. Trunkline E La and Katy were off about a nickel, and Tennessee 500 L and Tetco E LA slid close to 8 cents. ANR SE and Henry fell about a dime.
In the near term analysts are looking for technical factors to drive futures prices. “[W]e will continue to defer to further technical deterioration that developed via yesterday’s lowest price levels since the end of April. Today’s snap back to the $2.31 area should not have come as a major surprise,” said Jim Ritterbusch of Ritterbusch and Associates in closing comments to clients.
He added that additional follow through to the upside would likely prove “arduous. We were pushed to the sidelines via yesterday’s close to below the $2.30 level and we have shifted to a cautious bearish stance for sellers willing to risk to the $2.48 level. The market appears to be pricing in a furtherance of yesterday’s [Thursday’s] much stronger than expected supply injection that was likely related to some reduction in power demand. From a longer term perspective, we are still viewing this market as in an approximate 50 cent trading range that could remain valid through much of the summer. But, we were forced to adjust our expected parameters lower via yesterday’s price action as we now expect a $2.00 to 2.62 range through this month and possibly next.”
Thursday’s larger-than-expected 62 Bcf storage build may be the first sign that coal is not going to give up its market share so easily. After the report, Tim Evans of Citi Futures Perspective said, “We’d read this as further evidence that natural gas lost some utility-sector demand for natural gas to the coal market with the higher prices of two weeks ago. Overall, however, the build was still supportive relative to the five-year average and keeps the storage surplus on a constructive downward path.”
Redeployment of gas-fired generation to its normal peaking function is also likely to temper the power burn.
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