Natural gas cash prices Tuesday for Wednesday delivery were uninspired except for in the Northeast, where some points flirted with $2 gains as forecasts turned cooler and power prices surged. February futures gained 8.2 cents to $3.455 and March was higher by 7.5 cents to $3.453. February crude oil fell 86 cents to $93.28/bbl.
New England and the Northeast continued their romp higher as temperatures were expected to cool further by the end of the week and power prices continued to rise. Forecaster Wunderground.com predicted that the high Tuesday of 41 in Boston would recede to 37 on Wednesday and 34 by Friday. The normal high in Boston is 35. New York City’s high of 45 Tuesday was expected to slide to 43 Wednesday before reaching a chilly 34 on Friday. The normal high in New York is 38.
The National Weather Service in southeast Massachusetts reported that “a fast-moving system will bring a period of accumulating snow and mixed precipitation to the region very late [Tuesday] into Wednesday. A frontal passage Thursday will bring a few snow showers to northwest Massachusetts and southwest New Hampshire as well as gusty winds and cold temperatures. Moderating temperatures are expected this weekend. An Arctic cold front will deliver much colder weather early next week.”
Next-day quotes on Tennessee Zone 6 200 L jumped $1.91 to average $7.30, and Wednesday deliveries into Iroquois Waddington gained 69 cents to $5.40. Deliveries into the Algonquin Citygates soared $1.96 to $7.34.
Pipes further south also experienced gains. Deliveries on Dominion added 6 cents to average $3.37, and gas bound for New York City on Transco Zone 6 gained 78 cents to $4.69. Deliveries on Tetco M-3 rose 2 cents to $3.70.
IntercontinentalExchange reported that Wednesday power deliveries into the New England Power Pool’s Massachusetts Hub gained a stout $10.97 to $60.25/MWh, and peak deliveries to the PJM West Hub added 63 cents to $37.13/MWh. At the Northern Illinois Hub, next-day real-time peak power gained $5.25 to $32.00/MWh.
A Great Lakes marketer said “usages will be higher, but we have to keep customers withdrawing from storage as well. We have been buying on a daily basis. We had to pay $3.59 on Consumers and $3.58 on Michcon. We had a warm Sunday, but then it got colder and today [Tuesday] we are right about normal in the mid-20s. I don’t see any let-up in the weather reports, so I think we will continue buying.”
The marketer said his company had baseloaded volumes at a somewhat lower level than normal, and early month market softness had given it an average purchase price less than index. The company’s figures show that with recent spot purchases, its overall cash prices for the month are now almost at index levels.
Gas for Wednesday delivery at Dawn lost a cent to $3.65, and parcels into Michcon were up by a penny to $3.56. Deliveries on Consumers went for $3.57, off a penny, and at the Chicago Citygates Wednesday gas fell about 3 cents to $3.52. On Alliance gas came in flat at $3.54.
In spite of futures market gains of nearly 35 cents over the last four trading sessions, analysts don’t see a seasonal bottom in place. Historically, the seasonal low in natural gas prices is about two weeks away, but abundant storage has analysts recalculating not only the timing but the magnitude of the decline.
“The bottom may be a few months away,” said Walter Zimmermann, vice president of United ICAP. “I think $2.68 is a very realistic minimum target, and it should take a few weeks to get there. If we get an average seasonal cycle in extent, that would get prices down to $2.28. Historically, the seasonal bottom is placed in January, but last year it didn’t bottom until April, and the year before that it didn’t bottom until March, so there is a recent tendency at least over the last two years of declining beyond late January or early February.
“I think we can chalk that up to the storage situation, and the projections for 2013 look little changed from 2012, slightly lower levels but the same trajectory, which if that occurs, we will have our maximum glut over the last nine years into March and April. If you look at 20-year seasonal averages, late January or early February would be the seasonal low, but off the recent trend and to look at the storage projections for 2013, it seems likely for this market to continue lower into March April than for it to bottom by early February.”
Longer-term weather outlooks turned a little cooler. WSI Corp. of Andover, MA, in its six- to 10-day outlook showed substantial cold over the eastern half of the country and normal- to above-normal temperatures in the West. “[Tuesday’s] forecast is colder across most of the eastern U.S. than yesterday’s outlook, [and] Temperatures may still run colder than forecast on the coldest days east of the Rockies under a deep trough sponsoring arctic air. The West, in contrast, could trend warmer in the presence of an amplified ridge.”
Analysts saw Monday’s gains to be largely the result of strength in the cash market. “[N]atural gas futures stepped higher again on Monday as colder temperatures moved further into population centers in the Midwest and East, with the cash market leading the advance,” said Tim Evans of Citi Futures Perspective in New York. He added that temperatures were also forecast to run somewhat cooler than they had been on Friday, helping to make the storage outlook a bit stronger, although he would still rate the overall prospects as neutral to bearish in the weeks ahead.
Physical natural gas prices surged an average of 28 cents Monday.
Consistent with his bearish outlook, Evans is expecting a withdrawal in the upcoming inventory report of 124 Bcf, less than the five-year average of 144 Bcf. He said “by Feb. 1 the winter will have reached the midpoint, with rising temperatures becoming the seasonal norm. With inventories clearly sufficient the balance of the season, it typically takes a more extreme temperature variance to push prices higher late in the winter.”
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