Spot prices rose sharply early Tuesday as expected following Nymex’s wild 76.7-cent rise on Monday, but cash points managed only 30- to 45-cent increases on average and weakened toward the end of trading.
The short-covering frenzy also fizzled on Nymex, bringing the January contract down 18 cents to $6.722. But cash traders never really seemed to buy into the Nymex rally to begin with.
“We had pretty lackluster demand today in the Northeast because of the strong prices,” said a regional marketer. “Warmer weather is moving into New England so we saw some pretty decent selling across the board. Looks like some people had some length on the pipes that they managed to get out of. All in all, regional basis differences to the Gulf cashwise were very soft.
“You didn’t see a lot of good buying interest from the power types; the spark spreads were pretty thin,” he added. “With the warmer weather moving in, there seemed to be an abundance of sellers around. All the excitement so far has emanated from the natural gas futures pit with very little action going on in the physical market areas.”
The only real buying strength, according to another marketer seemed to be in the Midcontinent and Upper Midwest, particularly the Demarc and Ventura areas, where prices were up at times more than 50 cents from Monday.
Temperatures over the middle of the country were sharply lower Tuesday. “Prices came out strong and then without the buying interest they just fell off,” the marketer said. “Chicago started in the $6.40s and tried to move up, but faltered. Gulf points also fell off toward the end. The Northeast was warmer and spreads weren’t nearly as good. Index transactions were all negative at the end of the day. The trend was definitely down as trading ended.”
Chicago maintained its negative basis to the hub, ending the day at 10-15 cents less than Henry Hub prices. In the West, prices reached their highest levels since February or March but also ended weak.
The futures market, meanwhile, could consolidate now until EIA releases its storage report Thursday morning. Early market forecasts are calling for a relatively large withdrawal of between 75 and 130 Bcf. The five-year average for the week is 73 Bcf, but last year 162 Bcf was withdrawn during the same week.
“We’re expecting a three-digit number in the low 100s,” a Midcontinent region trader said. “We certainly had enough cold weather. But it depends on whether people used their stored gas or relied more on the economically attractive daily market to serve their loads. I would think the East Region will show a pretty good draw. We may have already seen the futures adjustment to a big storage number. I don’t know. The 59 Bcf withdrawal last week started the market rally. I wonder what a 130 Bcf withdrawal a week later will do.”
Tim Evans, futures analyst with IFR Pegasus, said he believes Monday’s rally removed a significant amount of short vulnerability from the futures market so another rally of similar magnitude is unlikely.
Nevertheless, some traders say there is some physical market justification for what has happened on Nymex.
“All the people who think we’re in a good position supplywise are talking bunk,” said one observer. “If we see some big withdrawals here in the next few weeks, I think this thing will go to the moon again.
“There’s also a lot less trading going on now than in the last few years. I wonder what is going to happen when we get several consecutive weeks of very cold weather and LDCs don’t have the spot purchase options that they had in the past. Sure, they have the storage and the transportation lined up, but can they make it all work in a tight spot. That remains to be seen without the Dynegys, Enrons, Aquilas, AEPs, Dukes and El Pasos running the show.”
Whether they get into a tight spot will be determined by the weather. Accuweather is calling for a cold end to December in the Midwest and Northeast. Weather Services International also has called for a cold December in those areas. So far, however, the National Weather Service hasn’t played along.
The latest six- to 10-day outlook calls for above normal temperatures in the northern third of the country west of the Great Lakes with normal temperatures over the rest of the country except for the Gulf Coast of Louisiana, Mississippi, Alabama and all of Florida, which are expected to be below normal.
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