In one of the least volatile trading days in the cash market in recent memory, spot prices barely moved on Veteran’s Day, with many points inching up only a nickle while a few others fell a couple pennies. However, the cash market was a striking contrast to the futures market on Nymex, where the December contract collapsed 44 cents to $7.236 in response to falling crude oil and heating oil prices.

“It was quiet in cash, but futures was another story. I think cash will get some of that on Friday,” said a Canadian producer. “We still did quite a lot of trading despite the holiday. Prices were almost exactly the same as yesterday and it was the first time I had seen that in a long time. We actually had tight ranges and stable prices. It took a holiday to accomplish that.

“Meanwhile, Nymex really got crushed, but most of that happened after cash went off,” he said. “I think cash will really fall at the opening bell. It’s warming up in Chicago and storage is completely full.”

A Northeast LDC buyer said he was busy buying up Northeast gas and production area supply in order to avoid pulling too much out of storage while spreads to December remain wide.

“What we are seeing is that there is still quite a spread between this stuff and the winter so we are trying to preserve some of our storage by buying some flowing supply right now. We are keeping as much gas as we can in the ground. We’re not filling up storage, but we are slowing down withdrawals.” He said rather than withdrawing 100,000 Dth/d from storage his company was taking only 50,000 Dth/d and buying 50,000 Dth/d of flowing supply.

However, the basis spread to December futures was closing rapidly on Thursday. After ballooning out to $2/MMBtu at many points earlier in the week, the basis spread between current cash and December futures was reduced to about $1 Thursday.

Henry Hub cash was about $1.05 less than December futures Thursday after being $1.56 less than the near month contract on Wednesday. El Paso Non Bondad in the San Juan Basin was at minus $1.61 Thursday compared to $2.01 on Wednesday, and New York City Gate on Transco was at minus 49 cents Thursday compared to $1.01 on Wednesday. Chicago basis tightened to about 92 cents from $1.39 a day earlier because of the sharp drop in near-month futures.

“I think the wide spreads will go away at some point later this month,” the LDC buyer said. “I don’t know if cash will go up; I think maybe futures will continue falling like they did today.”

While some LDCs may be taking advantage of current spreads, they probably would have been better off locking in longer term purchases earlier in the summer, or putting price caps or collars in place to prevent a catastrophe from happening. But many are limited in what they can do because of years of regulatory oversight and restrictions. For example, the LDC buyer said setting price caps and collars earlier this year was out of the question for his company. Those hedging tools are no longer allowed by regulators in some states.

“We used to do collars and price caps using options a number of years ago but they were dropped from our plan,” he said. “Some state regulators didn’t look too favorably five years ago on that. They were okay with doing fixed prices for long-term supply, but they didn’t like the cost of the caps and collars. We were paying 20 cents to cap the price at $5 and they weren’t wild about paying for that insurance. I forget whether it would have saved us money, but I think it probably would have at today’s price levels.”

Rather than capping prices or using other tools to provide more price security, LDCs often leave themselves exposed to the ups and downs of the volatile futures and cash markets. The buyer said his company typically uses a mixed buying approach. He looks for value in the futures price curve and locks in some forward purchases, while also doing some monthly baseload deals at index and some daily cash buys. “We come up with a plan every year and share it with regulators. We get their bobble-head approval on what seems reasonable.

“We have a mix of stuff we are working with, but all of it will look pretty good if futures prices continue falling. I’m hoping that the price trend that we’re seeing today in the market continues because storage is really full, we have plenty of gas and the weather is mild. If the weather remains reasonable, we are not going to have a problem.”

Temperatures were mild across the southern half of the nation and most of the East and West Coasts on Thursday. Although there were some significant drops in temperature over the Midwest and Midcontinent from the warmth on Wednesday temperatures remained above normal across most of the nation except the Dakotas. The Northeast could get some flurries this weekend and the Southwest is likely to get several inches of snow. However, for the rest of the country it will be close to normal.

The National Weather Service’s six to 10-day and eight- to 14-day forecasts have remained basically the same all week with above normal temperatures expected across most of the Midwest, East and Gulf Coast and below normal temperatures over the West and Southwest.

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