Cash quotes overall averaged 4 cents higher Tuesday, and the gains were led by strong performances at Midwest and West Coast locations. The gains were widespread with smaller rises reported at Midcontinent and Gulf Coast points.
At the close of futures trading November had risen 6.4 cents to $3.467 and December was higher by 7.1 cents to $3.768. November crude oil added a stout $3.06 to $92.39/bbl.
Great Lakes marketers have been consistent buyers of late. “We’ve been buying on a regular basis as it has been much colder recently,” said a Michigan buyer. “I’ve had my furnace on to some extent, but I don’t know the 10-day forecast. We did have freezing temperatures Monday morning, and we are trying to keep our customers in a good spot.”
He noted the great uncertainty surrounding the winter temperature outlook. “I’ve seen it where October has been cold and then November gets here and it gets warmer. We are continuing to buy on a spot basis but are reluctant to fill our storage. If there are going to be better prices going forward, there isn’t a need to fill storage.”
Better prices going forward may be a matter of timing. The Energy Information Administration in its Short Term Energy Outlook for September predicts falling then rising industrial natural gas prices for the Great Lakes region. September industrial gas for the East North Central U.S. (Ohio to Wisconsin) is anticipated to fall to $5.64 for October from September’s $6.03. By March, however, industrial gas in the region is expected to rise to $6.83.
Forecaster Wunderground.com predicts the high in Detroit of 59 Tuesday will fall to 52 on Wednesday before rising to 59 on Thursday. The normal high in Detroit at this time of year is 61. Chicago’s Tuesday high of 66 was forecast to slump to 52 on Wednesday before recovering to 61 Thursday. The seasonal high for Chicago in early October is 66.
Quotes at Chicago Citygates surged 10 cents to average $3.39, and Wednesday deliveries to Michcon added 7 cents to $3.34. On Consumers next day parcels rose 5 cents to $3.34, and on Alliance Wednesday gas came in at $3.36, higher by 9 cents. Dawn was quoted at $3.40, up 5 cents.
Other market areas didn’t experience quite the uplift. Quotes on NGPL TX OK were flat to average $3.14, and deliveries to Carthage gained 2 cents to $3.05. At Katy gas rose 3 cents to $3.12, and at the Houston Ship Channel Wednesday gas added 2 cents to $3.10. Buyers on Transco Zone 1 saw their prices rise a couple of pennies to $3.12.
West Coast points showed strength. At Malin Wednesday gas averaged $3.26, higher by 9 cents, and at the PG&E Citygates next-day gas rose 5 cents to $3.88. At the SoCal Citygates parcels went for 9 cents higher at $3.61, and at the SoCal Border Wednesday gas was a dime higher at $3.49. On El Paso S Mainline next-day gas added 10 cents to $3.49.
Futures traders were hard pressed to find a causative factor for the day’s 6 cent gain, but a Washington, DC-based analyst pointed out that changes in open interest may augur higher prices. “Natural gas prices bottomed in April as open interest topped. Subsequently, prices have rallied, but open interest has fallen. This may be seen as indicating short-covering. More recently, however, open interest reached a low point and has since increased. At the same time, prices have moved higher. This can be interpreted bullishly,” the analyst said in a report.
In addition, trading volume is soaring. Tuesday’s volumes were over 205,000 contracts in the November alone. A month earlier November trading volume was in the range of just over 100,000 contracts daily. “November is the first true winter contract. A substantial increase in price over the October contract is not uncommon, [and] the natural gas price curve, extending to 2024, prices November futures about 10.6 cents higher on average than the October contract,” the analyst said.
“This year’s 14-cent gap at expiration of the October contract was substantially higher. A gap so large could suggest emerging bullishness in this winter’s natural gas situation. A move over the recent $3.546 high would bring prices back to levels last seen in December, 2011 and approach resistance at $3.689.”
However, a prominent Midwest analyst has changed his near-term outlook to lower. “While conceding to the market’s ability to remain supported in the face of what appeared to be some bearish updates to the short-term temperature views over the past weekend, we still feel that some implied uplift in storage injections will still need to be discounted,” said Jim Ritterbusch of Ritterbusch of Ritterbusch and Associates in a morning note to clients.
“As a result, we have taken an expected near-term price advance to the $3.55 area off of the table for now and replaced it with an expected downside price swing to the $3.20 area basis nearby futures. Although above-normal temps across most of the country will not be showing major deviation from normal tendencies, we still believe that a return toward normal supply builds will force moderate selling pressure into the market.”
Addison Armstrong of Tradition Energy sees “traders shrugg[ing] off moderating weather forecasts for later this month and continu[ing] to focus on upcoming winter heating needs.” He sees the market pivoting around $3.40.
WSI Corp. of Andover, MA, in its six- to 10-day outlook said, “Temperatures may continue to trend cooler in the West and warmer over most locations south and east of MSP [Minneapolis-St. Paul] than currently forecast. While the NAO [North Atlantic Oscillation] is forecast to transition to a negative phase next week, the medium-range models this morning all trended stronger with a strengthening PNA [Pacific North American] pattern over the Pacific in the late six-10 and 11-15 day periods.”
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