Gas prices overall averaged a penny lower Monday with declines in the Midcontinent and Gulf partially offset by gains at California and eastern points. Futures prices took a hit as weather forecasters called for moderating conditions. At the close of trading November had tumbled 12.5 cents to $3.486 and December had retreated 10.3 cents to $3.774. November crude oil was down a penny to $91.85/bbl.
In the Midcontinent next-day prices eased slightly, but compressor maintenance is making it difficult to move gas to NGPL. “There is some compression down and that’s the reason prices are so high on NGPL,” said a Midcontinent producer. He added that the situation was expected to correct itself by the end of October.
“Gas is constrained coming out of Oklahoma into NGPL. There are compression issues and they cannot move the gas,” he said. He added that the relatively high prices were a mystery to him. “Whatever buying is going on is going into storage. This is a great time to hedge.”
Next-day gas prices throughout the region weakened. Quotes on NGPL Midcontinent Pool were down 3 cents to $3.27 and deliveries to NGPL Amarillo were lower by 3 cents as well to $3.38. Next-day gas on Oklahoma Gas Transmission eased a penny to $3.13 and deliveries to Panhandle Eastern were down a penny at $3.22. Gas on ANR SW dropped 2 cents to $3.23.
Temperatures in the area were forecast to be above normal. AccuWeather.com predicted Monday’s high in Tulsa of 86 degrees would fall to 84 Tuesday and 77 on Wednesday. The normal high in Tulsa this time of year is 74. Oklahoma City’s high of 83 Monday was anticipated to rise to 84 Tuesday before dropping to 77 on Wednesday. The normal high in Oklahoma City is 73. Oklahoma City so far in October has experienced 86 heating degree days, ahead of a normal accumulation of 50, AccuWeather.com reported.
On the West Coast prices rose in response to a forecast for above normal temperatures, which could last through the week. “A warm, bright Southern California week is in the works as offshore breezes usher in warm desert air.” Monday, Los Angeles, San Diego and the other coastal communities were to warm “well into the 80s,” whereas inland valleys “were to register readings above 90 degrees,” said Jim Andrews, AccuWeather.com meteorologist.
“Even some beaches will show temperatures above the 80 degree mark. A forecast downtown Los Angeles high of 86 degrees would be seven degrees above-normal for the date. Continued off-shore wind flow and sunshine will bring further uptick in temperatures to Southern California on Tuesday and Wednesday. Despite some shaving of daytime highs late in the week, area temperatures should hold at or above-normal through at least Friday.”
Quotes at Malin fell 9 cents to average $3.43, but gas into PG&E Citygate was steady at $4.06. Deliveries to SoCal Citygate rose 6 cents to $3.81 and parcels at SoCal Border delivery points were up by 6 cents to $3.69. Tuesday gas on El Paso S Mainline added 7 cents to $3.69.
Next-day gas at eastern points was mixed. Deliveries to Dominion averaged 3 cents lower at $3.37, but gas at Tetco M-3 added 3 cents to $3.48. Tuesday deliveries to Transco Zone 6 New York were 2 cents higher at $3.48.
Futures traders had an easy assessment for the day’s decline. “It was warm in New York this morning so prices fell,” said one floor trader.
He said he thought market support at $3.48 was a good number, but if it starts to slip it will go to $3.35, $3.27 to $3.29 and then $3.18. “If it starts to get over $3.51 to $3.53, then an extension to $3.55 is likely and it can move back up, but the lean is to the downside.”
Forecasters are calling for a warming trend for key energy markets. Monday’s forecast “is colder over the northwestern and north-central U.S. and warmer over most locations south and east of Chicago” than it was Sunday, said forecaster WSI Corp. of Andover, MA, in its morning six- to 10-day outlook.
“Temperatures may trend colder over the northwestern and north-central U.S. and warmer over most locations south and east of Chicago than currently forecast. The medium-range models all feature a strengthening -PNA [Pacific North American] pattern over North America in late October.” WSI said it had “average confidence” in the forecast based on the reasonably good large-scale model agreement.
Risk managers counsel some light selling into higher futures prices. “Weather continues to enter the discussion with the short-term outlook showing mild temperatures, but many long-term winter outlooks looking for colder-than-average temperatures,” said Mike DeVooght of DEVO Capital, a Colorado-based trading and risk management firm.
“Natural gas had been looking fundamentally weak, but the surprise storage number on Thursday [72 Bcf] showed high residential/commercial demand. In addition, the market looks strong technically as key resistance levels have been penetrated. Our summer positions have rolled off, and we started selling the winter strip this week as prices pushed up to our $3.75-4.00 target level. These are very light positions and we would like to leave plenty of room to add on at higher levels.”
DeVooght advises trading accounts and end users to stand aside, and producers should hold the winter strip at $3.75-3.95. “Continue to sell any winter months above $3.75-3.95 (light position),” he said in a weekend note to clients.
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