The natural gas cash market on average added 6 cents Wednesday for Thursday delivery led by weather-driven gains in the Great Lakes and East. In fact, points across the country were firmly in the black on the day outside of a handful of northeastern spots and a couple of midwestern points. Futures managed to build on Tuesday’s gains and at the close, June was higher by 4.6 cents at $4.070, and July had added 4.5 cents to $4.113. June crude oil rose 9 cents to $94.30/bbl.
Great Lakes marketers said they hadn’t done any buying all month as index-based purchases had held them in good stead so far.
“It’s hard to say if we will be running low by the end of the month the way the weather has been going. It seems to go from winter to summer, but for right now it looks like we are on track but we will have to shuffle around between customers at the end of the month. We had a colder weekend,” but Wednesday was looking to be “up in the 70s. We’ll see what our customers usage has been on Monday, but I am not to sure we will buy any more this month. We bought at May index and it has been the highest of the month, but we had to buy to guard against a possible interruption on Trunkline which never materialized. It was a strategy you had to take,” the Michigan marketer said.
The marketer pointed to unusually volatile weather as a new factor to deal with. “You have Minnesota and South Dakota, where it is snowing one week and in the 90s the next.”
According to meteorologists, a strong warm front is causing the temperature swings. Temperatures were expected to increase by nearly 50 degrees across parts of the Plains and Midwest between Monday morning and Tuesday afternoon. AccuWeather.com meteorologists said Chicago residents would go from wearing sweaters Monday morning to feeling sweaty by Tuesday afternoon as temperatures rose to nearly 15 degrees above normal.
“This dramatic change will occur thanks to a strong warm front that surged across the area late Monday night, [and] a gusty south-southwest wind ushering in unseasonably warm air for Tuesday will create one of the more dramatic temperature changes to ever occur in May,” said AccuWeather.com meteorologist Brian Edwards. “After O’Hare International Airport[in Chicago] fell to a low of 36 degrees Monday morning, temperatures will rise to around 84 degrees Tuesday afternoon, a difference of 48 degrees in just over 24 hours. Sioux City, IA felt a drastic temperature change, going from a low of 54 Tuesday morning to 102 degrees just five hours later.
“A huge temperature swing within such a short time frame is quite rare for the middle part of May. A change like this is more likely to happen in March or early April when the temperature difference across the country is greater than what it is currently,” said Edwards.
Gas for delivery at the Chicago Citygates Thursday added 9 cents to $4.13, and on Consumers gas was traded at $4.26, 6 cents higher. On Michcon, next-day gas was quoted at $4.28, 8 cents higher, and on Alliance Thursday deliveries were seen 6 cents higher at $4.12. At Dawn Thursday packages came in at $4.39, 7 cents higher.
Eastern points also rode the wave of higher prices. Gas on Dominion was quoted a nickel higher at $4.07, and deliveries to Tetco M-3 added 6 cents to $4.15. Gas bound for New York City on Transco Zone 6 gained 5 cents to $4.17. A few Northeast points proved to be the day’s main laggards, with gas at the Algonquin Citygates falling about 2 cents to $4.38, and gas upstream at Iroquois Waddington 2 cents lower as well to $4.51. Gas on Tennessee Zone 6 200 L tumbled 11 cents to $4.43.
Futures traders had a hunch that the market was anticipating a lower injection number than the consensus. “I think the market is mostly between 95 Bcf and 99 Bcf, but I think some are thinking between 90 Bcf and 93 Bcf,” said a New York floor trader. “If that’s the case we’ll run this market up to $4.15-4.20. But if it comes out at 100-102 Bcf, then we are right down to $3.90 again.”
A Reuters survey of 26 traders and analysts is looking for the 10:30 a.m. EDT report by the Energy Information Administration to show an average 95 Bcf, while analysts at IAF Advisors in Houston calculate a 92 Bcf build. Industry consultant Bentek Energy predicts an increase of 93 Bcf. Last year, 56 Bcf was injected and the five-year average increase is 83 Bcf.
Traders saw Tuesday’s gains as technically significant with the market poised at a key resistance level. “Depending on how thick your pencil is, the market closed right against that [resistance] number,” said a New York floor trader. “The market is right against $4.01 to $4.03, and it’s poised to work better or fail here, and I think traders will keep the market up here waiting for the number on Thursday. Traders may get in [buy] early or get out if they think they have an indication what the number might be. If the number comes out as expected look for the market to work a little better and give the longs a chance to get out. If not, watch for the market to fail and at least work down to the low $3.90s.”
He said the market was up against resistance, rather than resting on technical support. “It’s kind of a fine line. We are in a [technical] DMZ. This might be a good place to take off a little length and wait for the number to come out.”
Temperature patterns remain erratic but are unlikely to cause any significant demand shifts, and if nothing else may keep gas and power dispatchers on their toes. Chicago had a high Tuesday of 90, which was expected to drop to 82 Wednesday and 78 Thursday, according to AccuWeather.com. The normal high in Chicago this time of year is 70. Kansas City’s Tuesday high of 93 was expected to cool to 86 Wednesday and 84 Thursday. The normal high is 75. New York City saw a high of 61 Tuesday, which was expected to reach 68 on Wednesday and jump to 79 Thursday. The normal high in New York this time of year is 70.
Indications are that the weather volatility won’t diminish any time soon.
“Another burst of warming is being tracked early to middle next week ahead of a cold front and could be briefly stronger as well,” said Commodity Weather Group President Matt Rogers. “Beyond that, a cool push into the Plains early next week translates east across the U.S. to progress the overall six-10 day cooler today. Lingering cooling impacts the Eastern U.S. early to middle 11-15 day with the main heat concerns in the middle third of the U.S. again. Texas heat is focused on this weekend and early next week, with upper 80s Houston to low 90s Dallas. The West Coast leans cooler for the six-15 days.”
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