The physical natural gas cash market fell on average by 2 cents Wednesday as traders noted continuing weather-derived weakness at Northeast points. The Midwest was mixed and Gulf points eased a couple of pennies. The spot July contract was finally able to breach the $4.00 barrier and settled 0.3 cent higher at $4.001. August finished unchanged at $4.015, and July crude oil added 43 cents to $93.74/bbl.
Great Lakes marketers reported modest buying activity but were cautious about the nearterm. “We bought on Consumers and Michcon for Wednesday but didn’t buy for Thursday. We decided to wait a little bit and see what is going on,” said a Michigan marketer. “We paid $4.21 and $4.23 for our purchases on Consumers and $4.20 for our gas on Michcon.” The marketer also said that for June bid week they had paid a 30-cent basis on both Consumers and Michcon, well above historical averages.
Near-term temperature forecasts for the region should provide a softer price regime for the marketer. AccuWeather.com predicted that the 74 high Wednesday in Detroit would slide to 72 on Thursday and Friday. The normal high this time of year is 76. In Chicago, Wednesday’s high of 73 was anticipated to slide to 70 on Thursday and 69 on Friday; the seasonal high is 76. The peak reading in Indianapolis Wednesday of 80 was predicted to ease to 78 on Thursday and 77 on Friday. The normal high this time of year is 78.
“The persistent period of below normal temperatures will continue through the end of the week,” said the National Weather Service in Detroit. “Readings should work back to normal this weekend with upper level trough set to finally track eastward.”
Next-day deliveries on Alliance fell a penny to $4.00, and gas at the Chicago Citygates was down a penny at $4.03. On Michcon Thursday, gas traded at $4.14, down a penny, and deliveries to Consumers customers fetched $4.23, 2 cents higher. Deliveries to ANR ML7 fell 6 cents to $4.08, and gas at Dawn slid 3 cents to $4.29.
Thursday power prices at Northeast points fell, prompting a slide in next-day natural gas prices. The IntercontinentalExchange (ICE) reported that peak power for delivery Thursday to the New England Power Pool’s Massachusetts Hub eased $1.16 to $36.75/MWh. Deliveries to the Algonquin Citygates dropped 17 cents to $4.09, and gas into Iroquois Waddington fell 4 cents to $4.27. On Tennessee Zone 6 200 L, Thursday packages shed 16 cents to $3.99.
In the East, next-day power prices rose and quotes for gas were mixed. ICE disclosed that peak power delivered Thursday at PJM West rose $4.88 to $42.63/MWh. Quotes on Dominion added 4 cents to $3.79, and deliveries to Tetco M-3 shed 2 cents to $3.99. Gas bound for New York City on Transco Zone 6 was up a penny at $4.02.
Gulf points weakened. Thursday gas on ANR SE was down a penny at $3.88, and deliveries to Columbia Gulf Mainline were steady at $3.91. At the Henry Hub, gas was seen at $3.99, down a penny, and on Tennessee 500 L next-day parcels came in at $3.96, 3 cents lower. Gas on Texas Eastern E LA was down a penny at $3.91.
INTL FC Stone Vice President Tom Saal, in his work with Market Profile, expected the July contract to test Tuesday’s value area at $4.022-4.004, which it did. From there he suggested following the market higher or lower depending on how it breaks out of the week’s initial balance, pegged at $4.022-4.004. “Go with the weekly breakout/breakdown,” he said in a Wednesday note to clients. Upside targets are listed at $4.075 and $4.109, and downside objectives are at $3.937 and $3.902.
Thursday’s Energy Information Administration (EIA) inventory report may give traders the opportunity to test those targets as elevated levels of volatility often occur following the 10:30 a.m. EDT release of the figures. Last year 63 Bcf was injected and the five-year average is for a 92 Bcf gain. This week’s estimates are generally well above those. A Reuters poll of 24 traders and analysts showed an average 95 Bcf with a range from 80 Bcf to 110 Bcf. United ICAP forecasts a 100 Bcf increase, and industry consultant Bentek Energy calculates a 106 Bcf build.
Near-term market drivers are not only the next EIA storage report but there also is a tropical event in the Gulf of Mexico, said Tim Evans of Citi Futures Perspective. “The natural gas market continued to consolidate near the $4.00 mark on Tuesday as a short-term equilibrium pending further developments. One possibility would be if tropical low 91L in the Gulf of Mexico were to become a threat to some 4.16 Bcf in natural gas production spread offshore the central Gulf Coast, instead of just a rain event that dampens cooling demand in the Southeast for a few days…Odds favor the more bearish impact, but the storm still bears watching.”
At 5:30 EDT the National Hurricane Center had identified a well defined circulation in the east central Gulf of Mexico and was expected to issue advisories on Tropical Storm Andrea. It gave the storm a 100% chance of forming a tropical cyclone in the next 48 hours.
Evans’ model shows Thursday’s storage build at a low-ball 80 Bcf compared to industry forecasts in the 100 Bcf area. Evans suspects that the “actual data will come close to the consensus view, [and] we note that last week’s weather data was unusual in that it featured both added heating degree days and more cooling degree days than in the prior week. Fed into our model these, population-weighted degree day accumulations result in a lower 80 Bcf estimate for Thursday’s report, which we read this week as a contrarian view that points to some risk of a bullish surprise.”
Temperature trends throughout the eastern half of the country are expected to fluctuate around normal. AccuWeather.com forecast that Wednesday’s high in New York of 74 would ease to 70 by Friday and climb to 75 on Monday. The normal high is 76. Atlanta’s high of 83 on Wednesday was forecast to slip to 82 by Friday before hitting 92 on Monday; the seasonal high is 84. Dallas’ high Wednesday of 93 was anticipated to slide to 85 on Friday before climbing to 95 on Monday. The normal high this time of year in Dallas is 89.
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