Cash market prices on average fell 4 cents Tuesday as a handful of points showing gains of a few pennies had no chance of offsetting a broad and pervasive decline.
New England points showed double-digit losses, and locations in the Great Lakes and Midwest showed the greatest relative strength, giving up just a couple of cents. At the close of futures trading, May had eased 2.9 cents to $4.238 and June was down 2.0 cents to $4.278. June crude oil eased a penny to $89.18/bbl.
Great Lakes marketers found themselves paying elevated prices;in more normal times they would typically see weaker shoulder period pricing.
“We paid $4.60 and $4.61 on Consumers for Wednesday, and because of the possibility of a Trunkline outage, we can’t back off [buying],” said a Michigan marketer. “I think as long as the gas is in Consumers system, it will be there, but Trunkline and ANR are the major pipelines, and we have heard rumors about troubles on ANR as well. We have to be more concerned about what is in storage for our customers than we have ever had to be in April.
“We had to pay a 30 and 32 cent basis on Consumers, whereas on Michcon we had to pay just 24 cents. There’s plenty of Michigan production [keeping Michcon lower] and no pipeline problems, but more of our customers are on Consumers. We’ve only heard of the issues with Trunkline impacting Consumers.”
Quotes on Alliance for Wednesday fell 2 cents to $4.48, and gas into the Chicago Citygates was up about a cent at $4.46. On Consumers, next-day deliveries were seen at $4.59, down 4 cents, and on Michcon gas came in at $4.52, 4 cents lower. At Northern Natural, Ventura gas for Wednesday delivery fell 5 cents to $4.38, and at Dawn Wednesday packages were quoted at $4.67, 2 cents lower.
Soft power prices kept a lid on next-day gas at eastern points. IntercontinentalExchange reported that next-day power deliveries at the New England Power Pool’s Massachusetts Hub eased $3.33 to $44.92/MWh, and Wednesday power at the PJM West Hub slipped $2.64 to $45.30/MWh. Power into the New York Independent System Operator’s Zone A [western New York] market region added $1.35 to $40.25/MWh.
Temperatures in New England were expected to be sharply higher Wednesday. AccuWeather.com predicted Tuesday’s high in Boston of 45 would rise to 64 Wednesday, six degrees above normal. Hartford, CT’s 50 degree high Tuesday was forecast to surge to 72 Wednesday. The normal high in Hartford this time of year is 63.
Deliveries to the Algonquin Citygates were seen 26 cents lower at $5.04, and gas into Iroquois Waddington was 3 cents lower at $5.06. On Tennessee Zone 6 200 L Wednesday packages came in at $4.95, about 19 cents lower.
Prices and price declines were more nominal at points farther south. Gas on Dominion for Wednesday eased about 5 cents to $4.26, and on Tetco M-3 gas fell 6 cents to $4.45. Gas bound for New York City on Transco Zone 6 eased 7 cents to $4.47.
In April, $4 and $5 gas may seem elevated to some, and although it “reflects a more-than 50% increase over 2012’s record lows, U.S. natural gas prices are still very low compared to global markets,” said Marcela Donadio, Americas oil and gas leader for Ernst & Young’s oil and gas center. “The shale boom has created a new reality of abundant U.S. natural gas. Taking full advantage of this increased supply will require access to the global market in the form of LNG exports.”
Futures traders see Thursday’s expiration of June options as a pricing point. “It looks like $4.25 is the [options] strike most likely to attract the most activity,” said a New York floor trader. “I still think we have one more shot higher up to the $4.50 level in the next couple of weeks.”
Forecasters are calling for May heating and cooling requirements to be greater than the five-year average but less than 2012. Commodity Weather Group in its seasonal forecast predicted that May would show a combined heating and cooling load of 276 degree days, more than the five-year average of 267, but well below 2012’s 304 degree days.
“While the start of May is looking more variable on the dynamic models currently, the extended range guidance (CFS and Euro weeklies) are actually in agreement on favoring more warm Western ridging and more cool eastern U.S. troughing for much of May,” said Matt Rogers, president of the firm. “This should enhance late-season overnight heating demand in the North but suppress early-season daytime cooling demand in the South. There should be enough combined demand to keep the month running higher than the five-year running average, continuing a trend that has dominated spring 2013 and has kept it well ahead of 2012. May 20 is the key transition point when national cooling demand overtakes heating.”
Looking out to the summer, “2013 has so far tracked every month cooler than 2012, and the odds seem to be increasing that summer follows suit. Right now, we still have August 2013 hotter than August 2012, but May, June and July are all slipping cooler based on updates in the past two weeks.”
For the moment, analysts see the market working higher despite Monday’s sharp sell-off. “The temperature factor has been back in play so far this week as upper Midcontinent cold forecasts into the month of May have been replaced by more seasonal patterns indicative of limited demand for either heating or cooling needs,” said Jim Ritterbusch of Ritterbusch and Associates.
“Although the weather factor is usually virtually erased by this time of year, the exceptionally cold March-April period this year has sensitized natural gas futures to the first indication of temperature moderation. As a result, adjustments in the next few EIA report expectations are being made and some further reduction in the y over y supply deficit would appear likely. However, one more sub-normal injection is expected on Thursday and we feel that the market will be gravitating higher ahead of the report as was the case last week.”
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