The overall cash market added two cents on average Thursday as gains at eastern points and the Gulf Coast were able to offset softness in the Northeast and southern California. The Energy Information Administration (EIA) reported a build of 51 Bcf, which was higher than market expectations, but prices slipped only for a moment. At the close November futures had gained a stout 11.7 cents to $3.587 and December had added 8.4 cents to $3.904. November crude oil eased 2 cents to $92.10/bbl.
Next-day prices at Northeast points slumped as warmer temperatures were forecast. “As long as lows stay out of the 40s, you will probably have lower pricing,” said a Houston-based marketer. “What happens is that the high may reach mid-60s, but that’s only for a little bit, and then it gets cold at night and loads and demand go way up.
“It’s not an enormous issue right now, but if you look at the history for this past week, Tuesday’s actual temperatures [Boston] were 63 and 45 for a low, and Wednesday was 56 and 42 for a low. Wednesday-Thursday pricing came off, and it was a 62 high and 55 low and [Friday] it is 66 high and 61 low going into a weekend. I don’t think we’ll see a gigantic fall off over this weekend because it is sunny, pretty mild and temperatures are a little above normal. Next week, Boston is looking at highs in the 60s and lows in the 50s, so I would imagine we’ll see some softer prices.”
He added that it was also important to watch New York City. “It pulls in a lot of stuff, and a lot of times on the temperatures are low and there are clouds, then it feels colder with the humidity. When you start seeing more sunny times, it feels warmer. It’s going to be 72 for highs in New York all next week, and I don’t think power is going to be a big driver in New York next week, which would be a big pull on gas. The power plants are the main drivers every day,” the marketer said.
Quotes for Friday gas at Algonquin Citygate fell 7 cents to average $3.81, and deliveries to Iroquois Waddington were down 10 cents at $3.83. Friday packages on Tennessee Zone 6 200 L dropped 15 cents to $3.82.
Gas deliveries at points farther south rose. At Tetco M-3 next-day gas added 4 cents to $3.49, and gas flowing Friday into Transco Zone 6 New York rose 5 cents to $3.48. Dominion gas was up by 5 cents to $3.34.
Next-day prices in Southern California fell, but gas into Northern California rose as southern portions of the state were forecast to see a reprieve from a mini heatwave of the last several days. AccuWeather.com predicted that the high in Los Angeles Thursday of 86 would fall to 79 on Friday and 70 by Monday. The normal high in Los Angeles at this time of year is 78.
Gas delivered to the El Paso S Mainline tumbled 11 cents to average $3.57, and deliveries to SoCal Citygates shed 7 cents to $3.69. At SoCal Border locations Friday gas lost 8 cents also to $3.54. Farther north, PG&E Citygate deliveries averaged two pennies higher at $4.02, and gas into Malin fetched $3.47, 7 cents higher.
Deliveries at Gulf points were higher. At the Henry Hub Friday deliveries averaged 4 cents higher at $3.28, and gas on Texas Eastern E LA rose 2 cents to $3.23. Gas on Tennessee 500 L tacked on 7 cents to $3.31.
Futures traders were set for an EIA inventory report that was expected to show a hefty shortfall relative to historical averages. The cooler temperatures of last week in eastern and Midwest energy markets were expected to be more than sufficient to cause a significant variance in natural gas storage from both last year and long-term averages. The National Weather Service reported that for the week ended Oct. 13, New England experienced 121 heating degree days (HDD), or 29 more than normal; and the Mid-Atlantic received 116 HDD, or 39 more than its normal tally. The Midwest from Ohio to Wisconsin shivered under 133 HDD, or 53 more than its seasonal norm.
Last year, a whopping 106 Bcf was injected, and the five-year average stands at 71 Bcf. Kyle Cooper of IAF Advisors expected a build of 47 Bcf, and a poll of 25 analysts by Reuters resulted in a sample mean of 48 Bcf with a range of 28-70 Bcf. Bentek Energy forecast an increase of 53 Bcf.
Tim Evans of Citi Futures Perspective anticipated a bullish 36 Bcf injection and said futures “backed up toward the middle of the trading range on Wednesday, supported mostly by expectations for below-average storage injections in Thursday’s DOE storage report.” In his view, their estimate indicates there may be “a bullish surprise, although our model has been wide of the mark in recent weeks.”
The folks at Energy Metro Desk (EMD) were looking for a storage surprise. “This time of the year, we’re no stranger to EIA storage report surprises. The last couple weeks have been true to form; EIA was higher than the market by 5 Bcf, then lower than the market by 5 Bcf, 5 higher, 5 or so lower, and so on. Last year, we saw much the same,” said John Sodergreen, editor.
Sodergreen placed his faith that there would be a surprise on the fact that in the weekly EMD survey “The SD [standard deviation] for this week is a highish 5.6. And the range between the three categories we track — surveys, bank analysts and independent analysts — is over 3 Bcf wide. Actually, it’s almost 4 Bcf wide. This is a clear signal a surprise of 5 Bcf is in the cards, either higher or lower than the consensus of 49.7 Bcf.”
Perhaps of greater significance was the fact that the seemingly bearish injection figure of 51 Bcf didn’t cause prices to work lower for any sustained period, and it caused traders to wonder. “The number didn’t have the effect it would normally have. You see this all the time. When the number comes out, bullish or bearish, it goes in the direction it is supposed to but only momentarily,” said a New York floor trader.
“I think it’s all high-frequency trading. They will program a response to the number into their computers and then look to see the market make a big swing and then they just get right back into the market. High-frequency traders are known for that. They program a market entry and exit all at the same time,” he said.
High-frequency trading — when a trader uses technological tools and computer algorithms to make trades on a rapid basis — has recently come into the spotlight in the natural gas market with experts noting that traders can either get swept up in the wrong direction when a round occurs, or pick their spots to take advantage (see Daily GPI, Oct. 17).
Sodergreen took up the issue of whether high-frequency trading (HFT) was positive for the markets and queried “Did anybody note that piece in the [Wall Street Journal] this week talking about market vols just ahead of the weekly natty gas storage report? More often than not, the volume of trades a few seconds before the report is released has gone from dozens to hundreds to sometimes thousands of trades in that pre-report sliver of time. We’ve seen the prices go up 5, 7, 9 centavos or more, only to ratchet back down in the wink of an eye. Hmm. We’re thinking that humans can’t move that fast. So, who can we thank for the price movement? Are [high-frequency traders] causing all that pre-report volatility? Looks like it. Is this a good thing or a bad thing? Is this momentary liquidity these strategies bring forth — regardless of how fleeting — good for the market or not? Is this an example of extreme market efficiency before our very eyes or tactical manipulation? Dunno. Maybe both.”
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