The natural gas cash market worked lower by 9 cents on average Tuesday for Wednesday delivery with all market and producing areas declining. Rocky Mountain points were hit hard, but locations in the Midwest were weak as well. Most major trading hubs lost anywhere from a nickel to a dime. At the close of futures trading the May natural gas contract had fallen 6.5 cents to $4.017 and June was off 6.1 cents to $4.057. May crude oil rose 84 cents to $94.20/bbl.
In spite of the slide in next-day prices across the Midwest and Great Lakes, buyers were not impressed and were trying to purchase as little as possible at what they saw as elevated prices. “Every little bit helps. We are hopeful that someday soon warmer weather will arrive, but we have to keep a little handy [for our customers] in case of the unforeseeable,” said a Michigan marketer. “We are doing what we have to do but no more than that. Prices are coming off. We had to pay $4.52 and $4.54 on Consumers Monday, but today we paid $4.39 and $4.375.”
Temperatures in the area were expected to be somewhat below seasonal norms. AccuWeather.com forecast that Chicago’s high Tuesday of 52 would slip to 49 Wednesday before inching up to 50 on Thursday. The normal high in Chicago at this time of year is 56. In Detroit, Tuesday’s high reading of 56 was anticipated to ease to 52 on Wednesday and 50 on Thursday. The seasonal high in the Motor City is 56. Indianapolis’ high of 80 on Tuesday was expected to slip to 76 on Wednesday and 64 on Thursday, well above the seasonal high of 60.
Next-day gas on Alliance came in at $4.25, down 5 cents, and at the Chicago Citygates gas for Wednesday delivery was quoted at $4.22, 4 cents lower. On Consumers gas was down 12 cents to $4.38, and on Michcon packages for Wednesday skidded 89cents to $4.28. At Dawn, next-day gas dropped about 12 cents to $4.41.
Tom Moore, a meteorologist at The Weather Channel, said, “Wednesday highs will only be in the upper 20s and 30s along the Front Range from Wyoming to Colorado,” yet next-day prices managed to slump at Rockies delivery points.
Gas was quoted at $3.93 at Opal, down 9 cents, and on Northwest Pipeline, Wyoming Wednesday deliveries were seen still lower at $3.89, 8 cents lower. At the Cheyenne Hub, gas came in at $3.96, about 11 cents lower, and on CIG, next-day quotes were down 8 cents at $3.91. Gas on Questar was seen about 9 cents lower at $3.90.
Major market centers were also unable to escape the lower price regime. Henry Hub was seen at $4.08, 10 cents lower, and Transco Zone 6 NY was quoted at $4.44, about 6 cents lower. At the PG&E Citygates gas for Wednesday delivery fell 6 cents to $4.11, and at the SoCal Citygates next-day deliveries were quoted at $4.20, 7 cents lower.
Futures traders were optimistic that $4 price support would hold. “We have a number Thursday that is coming in at a small draw between 5 and 15 Bcf, so we’ll probably have one more draw until we get into building mode. If it’s a bigger number than expected, this market is going to rally up again,” said a New York floor trader.
“I think $4.25 may be the end of this move higher, but who knows? We are still at numbers that I think are higher than they should be based on how much we still have in storage.”
Fundamentals analysts see a prolonged storage deficit adding a bullish tone to the market. “Non-weather related items appear price supportive on balance as we have emphasized a slight down trend in the pace of production that has virtually eliminated year over year gains in recent weeks,” said Jim Ritterbusch of Ritterbusch and Associates in a morning note.
“We also feel that any exogenous variables such as hydroelectric production, nuclear down time, decreased imports, etc. are all apt to offer surprises on the bullish rather than the bearish side. As a result, a supply deficit could remain intact for some time especially with coal-to-gas substitution showing only limited response thus far to a $4 handle in the natural gas market. As the spring period is expected to remain cool beyond mid-month within the upper Midcontinent region, we expect a continued firm tone to the spot market that will likely be supporting nearby May futures for a couple more weeks relative to deferred contracts. As a matter of fact, we are not ruling out an erasure of the approximate 3.5-cent carrying charge in the front May-June switch [spread].”
Addison Armstrong of Tradition Energy sees the market “shift[ing] its focus to forecasts for warm weather and reduced heating demands in the coming weeks. But early expectations of a storage withdrawal and the significantly lower levels of gas in storage as injection season starts appear to be providing support for the market.”
Technical analysts see the bullish model still in place. “To damage the case for a subdividing fifth wave up from $3.861, $3.983 must be broken,” said Brian LaRose, market technician with United-ICAP. His figures show that “to derail the case for an irregular wave four correction followed by another round of fresh highs, $3.756-3.741 must be broken. Until and unless natgas can get below these key support levels we cannot eliminate the bullish models. Protective sell-stops below $3.741 are strongly encouraged.”
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