The cash market continued to slide lower Thursday with prices mostly dropping less than a nickel, except in the northeast, which recorded a handful of double-digit drops. Midwest points were only modestly lower, while a few spots in the Rockies and in California managed to tally gains.
The Energy Information Administration released storage figures showing inventories declined 64 Bcf, somewhat greater than what the market was expecting, but after a brief flurry upward, the bullish cause floundered and futures prices yawned to a mixed close. At the end of the day April had fallen half a cent to $2.279 and May had added 0.4 cents to $2.420. April crude oil slipped 32 cents to $105.11/bbl.
As attractive as low natural gas prices may be for end-users, marketers charged with the responsibility of navigating the uncertainties of price direction are finding these to be challenging times. “Some of our customers have mentioned the possibility of buying their gas via an RFP [request for proposal] in which case we would have to bid to retain their business. They are thinking the market is close to a bottom and are considering a long-term purchase,” said a Great Lakes marketer.
The marketer said his firm was treading very cautiously with its purchases because the warm weather posed a risk to the proper management of excess storage gas. “We are buying hardly any gas above baseload,” he said.
Quotes throughout the upper Midwest were off a couple of pennies.
At eastern points next-day weakness failed to translate into softer term. “Our winters [term markets] are hanging in there and if anything have gained some strength,” said an eastern broker. “Winter Z6 is trading $1.70 over Henry and was trading there [Wednesday] as well. M-3 is right around 58 cents over and was trading there [Wednesday] at the close also.”
“Summer April-Octobers have come off some, but there hasn’t been a lot of volume. A number of traders are following the basketball tournament. I see that [Henry Hub] cash traded down to $2.05 this morning and yesterday [Wednesday] it was trading around $2.14. It just seems to get hit every day, and we might see it under $2 tomorrow.”
“If cash keeps trading as weak as it does, eventually these winters are going to have to get sold off. I can see why the summers are getting sold with all the heat that is out there, but eventually the winters have to follow,” the broker said.
Next-day gas at Tetco M-3 fell close to a dime, and quotes on Transco Z6 fell about a nickel.
Price declines were more pronounced on Northeast pipes. Algonquin Citygate and Tennessee Zone 6 200 L both fell more than 15 cents, and deliveries into Iroquois Waddington dropped a dime.
Analysts following the intricacies of the storage report said that although on an absolute basis the 64 Bcf was not a very bullish figure, it may mask some underlying strength in the market. “Temperature adjusted, that is actually indicative of a very bullish situation. It’s just that temperatures are so mild,” said Kyle Cooper, principal at IAF Advisors in Houston.
“There is other demand coming in, and if that sticks around and you get some [normal] weather, you could get some pretty decent draws. This winter has taken out 100s of Bcf of demand. That’s really the bottom line,” he said.
Prior to the release of the inventory data, observers were looking for a withdrawal below historical averages. Last year at this time 60 Bcf was withdrawn, and the five year average pull is 79 Bcf. For the week ended March 9 a Reuters poll of 19 analysts ranged from a 45 Bcf decline to 73 Bcf with an average of 57 Bcf. Bentek Energy calculated a 57 Bcf withdrawal as well, and IAF Advisors in Houston expected a draw of 61 Bcf.
The trend of weak withdrawals is likely to continue next week if heating-load forecasts are correct. The National Weather Service (NWS) predicts well below-normal accumulations of heating degree days (HDD) for the Northeast and Midwest. For the week ended March 17, NWS estimates that New England will see 109 HDD, or a whopping 102 fewer than normal, and the Mid-Atlantic is expected to have 88 HDD, or 104 fewer than its normal tally. The Midwest from Ohio to Wisconsin is forecast to see 54 HDD, or 147 fewer than its seasonal norm. The five-year average storage withdrawal for March 16 is 71 Bcf.
John Sodergreen of Energy Metro Desk said, “This week we’ll likely see the last draw of the season. Actually some forecast pros are calling for net injections for both March and April. We read that while injections are not all that unusual in April, this year would be the first time in the past 15 years that the U.S. nets to an injection in March.”
Forces may be in play to limit what look to be squeezed storage facilities at the end of the injection season. “[I]t may be the year that economic demand did show up, just in time to meet up with dipping production,” Sodergreen said.
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