The physical natural gas market on average moved a penny lower Wednesday, as buyers seemed content with mild weather to rely mostly on baseload volumes. Points in and around the Great Lakes were up by a couple of pennies and around the Gulf, prices held within a 2-cent range of unchanged. Rockies points were mostly unchanged as well. Futures gained on light volume as players positioned themselves ahead of Thursday’s Energy Information Administration (EIA) storage report. At the close of trading, June futures had risen 5.8 cents to $3.978 and July closed 5.6 cents higher at $4.030. June crude oil gained $1.00 to $96.62/bbl.
Marketers in the Great Lakes reported that elevated first-of-the-month purchases sent them out of the spot market. “We went into the month wanting to protect ourselves from deliverability issues [on Trunkline]. We have gas to sell, although it is going to be cooler this weekend and we don’t know what that will do to our customer’s usage,” said a Michigan marketer.
“We are just holding on to our baseload volumes, and we do have some storage options. We also are not done with the month but prices are now lower than index.”
AccuWeather.com forecast a pattern of falling temperatures over the next few days. Chicago’s Wednesday high of 70 was expected to drop to 56 on Thursday and Friday, 11 degrees below normal. In Indianapolis, Wednesday’s high of 78 was anticipated to drop to 76 Thursday and 67 on Friday. The normal high in Indianapolis is 70. Detroit’s high of 78 Wednesday was expected to slide to 74 Thursday and to 63 on Friday. The normal high in the Motor City this time of year is 67.
“There is a chance that yet another cold wave slated for the middle of May could have just the right conditions for patchy frost in parts of the Midwest and Northeast,” said Alex Sosnowski, AccuWeather.com meteorologist. “The period for potential frost would span Sunday to Monday (May 12-13) over part of the Midwest and would settle eastward Monday to Tuesday (May 13-14).”
Quotes for next-day delivery on Alliance added 2 cents to $4.04, and at the Chicago Citygates, Thursday packages were seen at $4.01, up a cent. At Northern Natural Gas Ventura parcels for next-day delivery changed hands at $3.91, a penny higher, and on Michcon, next-day gas was seen at $4.15, unchanged. Consumers Thursday gas was up 3 cents to $4.19, and Dawn next-day gas came in flat at $4.35.
Gas at Gulf points was mixed. Tennessee 500 L gas for delivery Thursday was seen at $3.92, up about 2 cents, and Transco Zone 3 packages were up about a penny at $3.91. Henry Hub gas was seen at $3.86, down 2 cents, and ANR SE next-day deliveries were unchanged at $3.86. Columbia Gulf mainline gas changed hands at $3.87, flat with Tuesday.
In the Rockies, prices barely moved. Deliveries to the Cheyenne Hub added a penny to $3.79, and Northwest Pipeline Wyoming Thursday gas came in at $3.73, up a cent. Opal Thursday parcels were unchanged at $3.76, and deliveries to El Paso Bondad were a penny lower at $3.76. Gas on Questar fell about a nickel to $3.70.
Fundamental bears will get a chance Thursday to view the market impact of what looks to be the first injection well above historical averages. The 10:30 a.m. EDT release of EIA storage figures is expected to show a build in the low-to-mid 80 Bcf range, well ahead of last year’s 30 Bcf increase and a five-year average of 69 Bcf.
A Reuters poll of 24 traders and analysts showed an average 83 Bcf, with a range of 69 Bcf to 94 Bcf. Analysts at ICAP Energy calculate an 84 Bcf increase, and Bentek Energy forecasts an 86 Bcf gain.
Those using Elliott Wave and retracement analysis sense that the market has made a seasonal high. “If a five-wave pattern is developing from the $3.050 low, the bulls should be able to carve out a bottom from the $3.891-3.850 zone. Turn higher from here, and we will be forced to entertain the possibility of higher highs,” said United ICAP analyst Brian LaRose in a note late Tuesday. “Fail to reverse, and we will have confirmation a larger degree correction is unfolding. At this time, we continue to operate with the assumption a seasonal top is in place.”
On a fundamental note, market researcher Genscape reported that coal use at U.S. power plants in the first four months of 2013 was 13% higher compared with the same period a year ago. Over the same period, natural gas use fell 11%. June Central Appalachian Coal Futures settled Tuesday at $59.85/ton, or $2.60/MMBtu.
Gas production also continues to increase. In its most recent production report, the EIA said February output rose to 73.22 Bcf/d, up from January’s 72.30 Bcf/d and year-ago February output of 71.95 Bcf/d.
“Supply growth remains resilient,” said Morgan Stanley analysts in a note on Monday. Analysts believe that despite a rise in U.S. production, lower stockpiles and the potential for rising demand from power plants will keep prices above $4.00/MMBtu on average through the end of the year.
In its six- to 10-day forecast, WSI Corp. expects a slightly colder trend over the East, compared to the previous forecast. “We still see a warm risk for much of the Midwest and East mid-to-late period as the European model continues to promote widespread warm weather,” it said. “However, we continue to advise a big downside risk over Southern California and the Southwest as there is increased potential for a cut-off low-pressure system to track across the region.”
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