Cash prices collapsed between 50 cents and more than $1 on Thursday, giving back about a third of what they have gained since bidweek, in response to continued futures weakness, slightly cooler weather in some markets and a somewhat larger than expected 52 Bcf weekly storage injection.

The Energy Information Administration (EIA) said working gas levels on Aug. 12 were at 2,515 Bcf, or 140 Bcf more than the five-year average. However, total U.S. working gas in storage dipped below last year’s level (4 Bcf below) for the first time in 2005.

EIA reported a 41 Bcf injection in the East, where working gas levels are 17 Bcf below levels at the same time last year. Storage levels in the producing region rose 7 Bcf but are 25 Bcf below levels last year, and storage levels in the West rose 4 Bcf but are 39 Bcf higher than levels at the same time last year and more than 14% above the five-year average. Total working gas levels are still nearly 6% above the five-year average.

In order for working gas levels to reach 3,200 Bcf by Friday Nov. 4, about 685 Bcf of gas will have to be injected into storage, or about 57 Bcf/week. Last year over the same period the average weekly injection was 66 Bcf. However, the incentives were a little different last year. There was a solid contango market with much higher winter prices than prices for front-month delivery, creating clear economic value for injections. Prices also were a little lower back then. On Aug. 18, 2004 the daily Henry Hub cash price index was $5.26, about $4.13 lower than where the Hub traded this Aug. 18.

The price difference is tough to swallow knowing that storage is now about even with levels at the same time in 2004. However, this summer’s temperatures have been much higher, and the price of crude also has been way beyond what it was last year.

“Since June we have had 17% more cooling degree days than normal this year, which is really hot, probably like a one in 20-year event,” said Ron Denhardt of Winchester, MA-based Strategic Energy and Economic Research Inc. “The other big factor is really crude. I suspect if oil prices were the same as they were last year, natural gas might be up only a dollar from last year. If we didn’t have all that hot weather, we have so much gas in storage that we would probably be trading down around where [residual fuel oil] prices are right now ($6.92/MMBtu).”

The heat dissipated quite a bit in New England on Thursday, with afternoon highs in the low 70s even the high 60s in some places. The Upper Midwest and Pacific Northwest also saw highs in the low to mid 70s. Meanwhile, the Midcontinent continued to bake in the mid 90s but there have been signs of moderation creeping into the weather forecast.

The latest six- to 10-day forecast was altered pretty drastically from Wednesday’s prediction. The National Weather Service is now calling for a large swath of below normal temperatures across a section of the country from Idaho to Alabama and as far north as Virginia. Above normal temperatures are expected over the Midwest, Great Lakes and most of the Northeast, as well as Arizona, part of Southern California and the along the coast in the Pacific Northwest. The forecast for the rest of the country is for normal temperatures.

The cash market was headed rapidly lower on Thursday and most indicators pointed down for Friday as well. “Dracut crashed about a buck today and Algonquin probably fell about the same or more, but it was very illiquid so it was kind of hard to tell where indexes will come out,” said a New England marketer. Fixed cash prices were off 80 cents to $1 across the entire Northeast region, with the largest drops at Iroquois Zone 2, Tennessee Zone 6, Algonquin and Dracut.

“There weren’t a lot of bids out there; it was all offers,” the marketer said. “Basis really got hammered. It’s like 35 cents now, down from 85 cents on Monday and 70 cents yesterday. Basis definitely is coming in. I think what happened was that the weather turned real cool. On Monday and Tuesday, there were a lot of people paying back gas to the pipelines and now I think they are all flat and there’s no more generation demand so we are just seeing basis get crushed.”

He said price direction on Friday likely will depend on the direction of gas futures, which lately has keyed off of crude futures. Crude futures gained a couple cents on Thursday to end at $63.27, while the near-month gas futures contract plummeted 46.3 cents to $8.928.

Northeast sources believe basis may tighten even further Friday for the weekend regardless of what happens with futures prices. “It’s supposed to rain in Boston tomorrow with highs in the low 70s, so I think we should expect basis to come in even further,” said a utility buyer.

Gulf Coast points tumbled 35-70 cents on average Thursday with some much larger drops at a few locations. Florida Zone 2 dumped about 98 cents while Zone 3 dropped $1.51 to about $10.43 on a somewhat cooler forecast and slightly relaxed transport conditions. South Texas saw some big drops of more than 80 cents. Tennessee Gas warned of a possible operational flow order due to overdeliveries and undertakes from its South Texas Zone 0.

Meanwhile, Midcontinent price declines were more in the 50s and 60s. And in the West Rockies prices were down about 55-60 cents with Opal at $7.49, or $1.90 under Henry Hub cash and about 27-30 cents less than the SoCal Border average. Questar was the low point in the cash market on Thursday with an average of about $7.27, down 54 cents from levels on Wednesday.

©Copyright 2005Intelligence 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.