Physical natural gas prices fell a couple of pennies on average Wednesday, but if constrained market points in the East on pipelines such as Algonquin, Iroquois, Transco, and Tennessee were held out of the mix, then the overall market loss would increase to about a nickel. Futures trading was light and traders suggest now might be a good time to sell irrespective of Thursday’s inventory report. At the close of futures trading April fell 5.9 cents to $3.470 and May dropped 5.6 cents to $3.519.
Forecasts of a wintry mix of rain and snow were not enough to prompt a rise in gas prices, even though the outlook was for pummeling snow and cold over heavily populated areas of the East.
Alex Sosnowski, a meteorologist with AccuWeather.com, said “a storm that slammed the Midwest with up to a foot of snow will bring a combination of rain, clinging wet snow and wind from New York City to Boston and much of southern New England. Snow will reach the New York City metropolitan area to Boston as well as part of northern New England and upstate New York before the end of the week.”
His assessment called for “one sloppy mess on the way. The combination of wind and wet snow in some areas will lead to downed tree limbs and sporadic power outages. Peak gusts in southeastern New England will range between 50 and 60 mph Thursday into early Friday. The storm will under go multiple strengthening and weakening phases, causing the precipitation area to wobble around. Marginal temperatures will also play a role in causing part of the storm to be rain and some of the snow that falls to melt on roads for a time.”
Temperatures were expected to be on the mild side, but below seasonal norms. AccuWeather.com predicted the Wednesday high in New York of 41 degrees would ease to 40 on Thursday and Friday, well below the normal high of 46 for this time of year. Philadelphia’s Wednesday high of 42 was anticipated to rise to 44 on both Thursday and Friday but remain 5 degrees below normal. In Washington, DC, the high Wednesday of 39 was predicted to rise to 42 on Thursday and 47 on Thursday. The normal high in Washington this time of year is 52.
Prices early in the day in the Mid-Atlantic firmed. “I paid $3.95 Tuesday for gas on Transco Zone 6 Non NY [Baltimore] and I paid $4.10 Wednesday. Prices are up a little bit but not terribly much,” said a Northeast marketer.
Next-day prices were mixed in the Mid-Atlantic. Quotes on Tetco M-3 fell 11 cents to $4.01 and deliveries to Dominion were off 4 cents to $3.67. Gas bound for New York City on Transco Zone 6 added 29 cents to $4.66.
He added that in New England, “in Massachusetts you’ve got the Millennium pipeline that has an interconnect at Ramapo [New York] into Algonquin which is at zero flow, normally it’s at 500,000 Dt/d. They have a major problem which brings in more gas from Iroquois which is driving Iroquois prices up.”
Quotes at the Algonquin Citygates jumped 31 cents to $7.77 and deliveries to Tennessee Zone 6 200 L gained 24 cents to $7.55. At Iroquois Waddington next-day gas came in at $5.46, down 1 cent.
Futures traders sense a selling opportunity. “We were expecting the market to get toppy in the mid $3.50 area and the only thing keeping it up against $3.50 resistance is the weather the East is experiencing,” said a New York floor trader. “This is probably a good place to sell, and if it moves into the $3.60s, that’s an even better place to sell.”
The typical volatility characteristic of the weekly release of inventory data may give traders an opportunity to sell at the $3.60 level. Expectations are for a withdrawal figure in the 130 Bcf range, well ahead of last year and the five-year average.
Early estimates by Energy Metro Desk showed a 130 Bcf withdrawal as did the forecast of United-ICAP. Industry consultant Bentek Energy utilizing its North American flow model forecast a pull of 134 Bcf. Last year 92 Bcf was withdrawn and the five-year average is a 107 Bcf withdrawal.
Market technicians see a much stronger case for downside movement than upside. Utilizing Elliott Wave and retracement techniques, Walter Zimmermann of United-ICAP calculates that the bullish case could take spot futures as high as $3.80, but the downside could see a drop to as low as $2.76.
“In the most bearish case, the presumed bear market correction up from the $3.050 low peaks into the $3.500 area,” he said. “The big question now is whether $3.554 was that peak. If not, then a further short-covering pop up to the $3.720 to 3.800 area is indicated.” Following the bear market correction, the down trend resumes taking prices as low as $2.76 as the market replicates the down move of late 2012 from $3.933 to $3.050.
“With storage more than ample and the winter winding down, the question is whether this short-covering rally can persist long enough to reach the $3.720 area,” Zimmermann said.
A Denver producer, however, takes issue with the idea of a continuing erosion of natural gas prices. “All these guys talking about a collapse in prices this spring don’t know much about the seasonality of gas prices.”
The producer cites the average spot natural gas futures prices for 1998-2009 as showing the lowest price in the first half of the year occurring during March at $4.324. From there the average advances to $4.647 in June before slumping during the summer. The highest average price is in December at $5.183.
“People tend to forget that Q2 is when a lot of maintenance takes place on nuclear and coal plants with gas picking up market share in the power sector. Pipeline maintenance in Canada can also reduce their exports to us. Refineries are big users of gas, and many of them are coming out of maintenance outages early in Q2, increasing their operating rates and burning more gas.”
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