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Cash, Futures Ease, But Trader Sees Seasonal Advance
Nearly all active physical natural gas trading points declined Friday weekend and Monday delivery. The average setback was 8 cents, with Rockies points dropping a dime and losses at New England points closer to a nickel.
Weather conditions were expected to be moderate and typically if gas buyers need to make purchases over the weekend they will often resort to last-minute procurements on smart phone-type devices rather than commit to a three-day package with the risk that resales might be necessary. At the close of futures trading, October had eased 3.3 cents to $3.687 and November was off 3.2 cents to $3.763. October crude oil dropped $1.72 to $104.67/bbl.
Rockies points slid as force majeure conditions were lifted. Young Gas Storage in Morgan County, CO, a 6 Bcf facility, returned a lateral line to service following exposure of the line during recent heavy flooding in the state. The company also said that Bijou Creek and Young Storage had been returned to service.
Weekend and Monday gas on Colorado Interstate Gas fell 11 cents to $3.44, and at the Cheyenne Hub gas changed hands at $3.50, down 10 cents. Packages on Northwest Pipeline Wyoming skidded 9 cents to $3.41, and at Opal weekend gas came in at $3.49, also down 10 cents. Gas at El Paso non-Bondad was seen at $3.54, 10 cents lower.
At eastern points a pattern of declining temperatures throughout the weekend and into Monday helped soften prices. Forecaster Wunderground.com said Friday’s high in Philadelphia of 81 was anticipated to drop to 79 Saturday and 68 on Monday. The normal high in Philadelphia is 73. Baltimore’s Friday high of 82 was seen sliding to 77 Saturday and 70 Monday. The normal high in Baltimore in mid-September is 76. Washington, DC’s high Friday of 79 was anticipated to ease to 77 Saturday and 68 on Monday. The seasonal high in Washington D.C. is 76.
The National Weather Service for Baltimore and Washington, DC, said “high pressure has moved offshore [Friday]. A cold front over Illinois will slowly move into the area Saturday…moving offshore Sunday morning. High pressure will build into the area and remain for much of the work week ahead.”
IntercontinentalExchange reported that power for Monday at the PJM West Interconnection fell $3.93 to $35.93/MWh.
Gas on Dominion for weekend and Monday delivery dropped 6 cents to $3.40, and at Tetco M-3 gas was seen at $3.66, down 6 cents. Gas bound for New York City on Transco Zone 6 fell 7 cents to $3.80.
Other Market Hubs failed to make it into the black. The Henry Hub was quoted at $3.68, down 5 cents, and Chicago Citygates were seen 10 cents lower at $3.74. Gas at the NGPL Midcontinent Pool endured a 9 cent drubbing to $3.51, and at the PG&E Citygates weekend and Monday packages traded at $4.04 down 5 cents.
Traders are looking for a seasonal advance. “In the ever-pulsating cycle of volatile and non-volatile I think we are setting up for a [seasonal] move higher,” said David Thompson, principal with Powerhouse LLC, a Washington, DC-based trading and risk management firm. “To the point that there is a lot of gas around, why do we think it is going to rally? There was a lot of gas around in February and yet we had a rally from February into May that took prices into the mid $4s. Then we sold off seasonally.
“This year has been an almost textbook seasonal price pattern for natural gas. That’s why even with all the gas around and all these things we know, the market has known this for quite some time. I think we are tracing out a price pattern that flows with the traditional demand patterns. I suspect the typical seasonal rally will start within the next two weeks.”
Thursday’s government storage report had analysts in “reassess” mode as the reported 46 Bcf build came in about 6-10 Bcf under market expectations. The market response, though, was eerily similar to Aug. 8, also an inventory report day but at that time the bears were in full control, or so they thought. The EIA reported a build of 96 Bcf, well in excess of market expectations in the 80 Bcf area. September futures posted a low of $3.129 immediately after the figure was released, but that proved to be the low of the down-move, which had begun from above $4.40 on May 1.
The high for the recent advance from $3.129 was made Thursday at $3.820 in the October contract just after an analogous bullish EIA number was released. The market backed off and settled barely positive and raises the question if this could be the end of the advance from $3.129 back in August.
Followers of Elliott Wave aren’t calling for the end of the advance, but they suggest a defensive approach. “Another valiant attempt to clear $3.780 and another failure. [I] still see this level as the gatekeeper to higher prices,’ said Brian LaRose, analyst at United ICAP. “As long as natgas remains below $3.780, the risk of a prolonged period of consolidation, even the possibility of a renewed down-trend, remains. As the short-term technicals are on the verge of rolling over in favor of the bears, a defensive stance is warranted at this time,” he said in closing comments to clients.
In a Friday morning report to clients, Tom Saal, vice president at INTL FC Stone in Miami, pointed out that the present low-volatility environment might be deceiving. The average move in the 12-month strip over a year’s period is a stout $1.50. With the 12-month strip currently at $3.956, his figures show that the strip could trade as high as $5.456 or as low as $2.456, thus potentially imperiling the profit and loss of end-users and producers, respectively.
Weather forecasts turned warmer in the East, but forecasters say it may not make much difference. In its Friday morning six- to 10-day outlook MDA Weather Services said, “The most significant change during this period is found along the East Coast, where the forecast has trended warmer late in the period. The strongest warmth is still expected across the Upper Midwest, where much above normal temperatures are still in the forecast, although this will not lead to much in the way of energy demand given the rapidly dropping normals.”
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