Physical natural gas prices Tuesday bounded higher, led by expectations of significant drops in temperatures and stout power prices. Futures headed south as traders factored in expectations of storage data expected to swell the surplus still further. March slumped 7.8 cents to $2.472 and April skidded 11.0 cents to $2.628. March crude oil rose $1.50 to $98.41/bbl.
New England points led the charge higher with quotes at some locations up by a half-dollar or more. Algonquin Gas Transmission issued warnings to shippers limiting nominations upstream of both its Cromwell and Southeast compressor stations for deliveries downstream.
Temperatures in the Northeast were forecast to drop Wednesday. AccuWeather.com predicted the high in Boston would reach just 36, nine degrees lower than Tuesday and one degree below normal. Wednesday’s high in Hartford, CT, was expected to be 39, also nine degrees off Tuesday’s high and three degrees above normal.
Near-term weather conditions were also expected to cool. “A press of cold air will drive southward late this week from the Upper Midwest to the interior mid-Atlantic and New England this weekend. While the cold push will not last long, it will feel like winter for a couple of days,” said Alex Sosnowski, AccuWeather.com senior meteorologist.
Next-day power prices were also higher at eastern points, making the use of natural gas for power generation more attractive. At the Massachusetts Hub, next-day Nepool was quoted at $38.19, up $3.67, and power for delivery Wednesday to PJM West rose $4.27 to $37.09.
Gas deliveries to Algonquin citygate were up nearly 60 cents and gas into Dracut added nearly 50 cents. Iroquois Waddington saw next-day prices jump more than a half dollar.
A Great Lakes buyer on Michcon said his company had to pay about 5 cents more than Monday. “We are looking at temperatures down in the 30s and it is feeling colder,” he said.
The buyer said Michcon, who had not been holding customers to their withdrawal ceilings for January and February, on Tuesday added March to that list, indicating they are really full and happy to let their customers draw down their storage.
Gas on Michcon added about 10 cents and prices on Consumers were quoted about eight cents higher.
In the Midwest, weather-driven gains were the rule. “Temperatures may range from 5 to 10 degrees below normal for a two-day stretch from Minnesota, Iowa and Illinois, eastward to Maine, New York and Virginia,” said Sosnowski. “The cold flow over the warm waters of the Great Lakes will set off lake-effect snow, but probably not in traditional areas. Surface winds will be from the north and northeast and could create some interesting bands of snow on the west side of lakes Michigan and Huron, over north-central Ohio from Lake Erie and between Buffalo and Rochester in New York off Lake Ontario.”
Futures prices slumped as traders were trying to get their heads around a potential expansion of the storage surplus of close to 100 Bcf. Analysts said the “market has already begun to look ahead to Thursday’s Energy Information Administration storage report where another sharply downsized supply withdrawal would appear inevitable.”
According to Jim Ritterbusch of Ritterbusch and Associates, “With this dynamic of a strong expansion in the supply surplus now back in play following last week’s pause, large speculators are apt to become more assertive in approaching the short side even though downside price possibilities would appear limited to the late January lows of around $2.23 per nearby futures.”
“Although the temperature views have become more diverse this week with some outlooks favoring some below-normal trends across a significant portion of the country, we will further maintain that even a sustained cold spell is unlikely to pack much pricing punch with spring now less than six weeks away. A larger focus will remain on a season-ending supply some 50% above average levels that may prompt forced liquidation in the process of weighing heavily on spot pricing next month.”
MDA Information Systems in its six- to 10-day outlook shows normal temperatures for the eastern fourth of the country with a ribbon of above-normal temperatures extending from Minnesota to Texas. The western half of the country is expected to be normal, with an isolated pod of below-normal temperatures.
“This period features stronger cold for the East at the onset as triggered by the spike in ridging over the Northwest in the near term,” the forecaster said in a morning report. “The cold may also linger an extra day, although the likelihood of it persisting through the period is still quite low given the ongoing Pacific influences and limited high-latitude blocking. Warmth should rebound by mid-period in the Central U.S. before pressing eastward as the period comes to a close. The favored model remains the Euro ensembles, though most of the guidance is in decent agreement on the overall pattern evolution.”
Market technicians are looking for about a 35-cent advance in order to call a market bottom. “Up from the $2.231 low, $2.880 was our first major hurdle for the case for bottoming action. That is right where natgas hit a brick wall,” said Walter Zimmermann, vice president at United ICAP. “So the case for another leg down is still alive and well. However, a few days ago natgas fell to only 13% bulls. The all time bearish sentiment extreme was 12% from $1.760 back in September 2001.
In an early survey conducted Friday Energy Metro Desk showed an average storage withdrawal expectation for the week ended Feb. 3 of 95 Bcf; 17 analysts were polled. Last year a stout 206 Bcf was withdrawn, and the five-year average stands at 191 Bcf.
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