Physical natural gas prices on average gained a penny in trading for Tuesday deliveries, but California prices soared as next-day power made huge weather-driven gains. Northeast locations were also strong, but many market hubs were flat to within a couple of pennies higher or lower.
At the close of trading August natural gas had gained 1.2 cents to $3.577 and September added 1.4 cents to $3.573. August crude oil added a stout $1.43 to $97.99/bbl.
Next-day power prices at market points in and adjacent to California soared as temperatures were forecast to reach well past the century mark Tuesday. The California Independent System Operator (CAISO) forecast that Monday’s peak power load of 45,728 MW would be exceeded Tuesday when statewide power consumption would hit 47,476 MW. Last year the peak load reached 46,846 MW at the end of August. The CAISO record of 50,270 MW was hit July 24, 2006.
IntercontinentalExchange reported that peak power for delivery Tuesday at Mid-Columbia rose $68.82 to $120.03/MWh, and COB packages settled at $138.68/MWh, up $76.67. Peak deliveries to NP-15 Tuesday added $36.59 to $108.65/MWh, and at SP-15 Tuesday peak power added $28.97 to $105.00/MWh.
Soaring temperatures prompted the rise. AccuWeather.com forecast that Burbank, CA’s high of 100 Monday would reach 104 Tuesday, while in Long Beach, the high of 87 is to climb to 90. The normal high in Burbank this time of year is 84, and at Long Beach, it’s 80.
“We are maxed out on our generation, but don’t have to go to the spot market for our combined cycle generators,” said a Southern California power generator. “We have pretty efficient units and as hot as it is we are going to be running full bore anyway. We buy what we need [base load] and then if it comes in cooler, we sell into the market. If you were a peaking unit you would be buying your gas on the daily market.”
Next-day gas at Malin was up 4 cents to $3.45, but deliveries at the PG&E Citygates soared 19 cents to $3.92. Gas at the SoCal Citygate for Tuesday added about 11 cents to $3.97, and gas at the SoCal border added 17 cents to $3.84. Tuesday deliveries on El Paso S Mainline added 2 cents to $3.90.
Hefty gains were also observed at Northeast points. Next-day gas at the Algonquin Citygates gained 13 cents to $3.77, and deliveries upstream at Iroquois Waddington added 2 cents to $4.00. Gas on Tennessee Zone 6 200 L rose 13 cents to $3.80.
Power prices at eastern points were mixed. Tuesday power into the New England Power Pool’s Massachusetts Hub rose $5.00 to $44.90/MWh, yet deliveries to the PJM West Hub slipped $5.94 to $37.40/MWh.
At other market centers, prices moved far less. At the Chicago Citygates, Tuesday packages were seen at $3.59, up a cent, and at the Henry Hub next-day gas was quoted at $3.52, 5 cents lower. Gas delivered to El Paso Permian traded flat at $3.47, and gas into NGPL Midcontinent Pool added 3 cents to $3.46.
Futures trading was lackluster. “Prior to the open the market was down around $3.53 and when it opened up it was up to $3.59,” noted a New York floor trader. “I don’t think we broke out of that range for the whole day.” He added that in his view once the inventory number comes out at noon EDT Wednesday, the market should be trading 10 cents lower.
Mike DeVooght of DEVO Capital Management is advising trading accounts and producers to stay short the market. Trading accounts are advised to hold on to a short position initially established in the June contract at $4.15. He advises a 25-cent risk on the trade. End-users are counseled to stand aside, and producers should continue to hold short the balance of a short July-October strip from $3.75-3.95 and also a short November-March strip at $4.50-4.60.
“High natural gas prices has caused power system operators to switch back to coal-powered generation,” DeVooght said in a note to clients. “A lack of demand and storage being in line with the five-year average has lead to the sell-off in natural gas over the past few weeks. On a trading basis, we will continue to hold our short positions. We will start to sell put premium if the front contract trades under $3.50.”
Commodity Weather Group (CWG) in its Monday morning six- to 10-day outlook shows above-normal temperatures in California and the Pacific Northwest, as well as New England. West Texas and New Mexico are forecast to see below-normal temperatures, but the remainder of the country is seen as normal.
“The big story from over the weekend was the stronger west shift in the Bermuda high-pressure feature for mainly the holiday weekend, but also into Monday-Tuesday next week for the East Coast cities,” said CWG President Matt Rogers. “The still-active precipitation pattern offers limits to this heat though so we favor mainly upper 80s to low 90s during the hotter period (within the bounds of other heat events this summer so far).
“Otherwise, strong early-period heat in the West gradually fades this week, but we still see moderate to much above normal temperatures in the six-15 day there, especially for the interior and at times toward the coast. The 11-15 day is fairly benign demand-wise for the overall U.S. (still hot West idea), but we also see some marginally hotter weather in the Plains, western Midwest and North Texas toward the end of the period.”
Natural gas is losing favor with fund and managed account longs. Addison Armstrong of Tradition Energy said “hedge funds and other investors continue to reduce bullish bets on natural gas, according to the latest Commitment of Traders Report” by the Commodity Futures Trading Commission. “For the week ended June 25, net-long positions in the managed money category fell for the fourth consecutive week, this time by 5.5% to 321,673.”
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