Cash prices for weekend and Monday gas on average Friday shed 10 cents as traders were reluctant to hold weekend positions in an environment of moderating weather and easy last-minute dispatch during the weekend.
The greatest losses were in the Northeast and East, and they were only partially offset by relatively smaller declines in the Rocky Mountains. The expired May contract fell 1.5 cents to $4.152 and June added 2.3 cents to $4.223. June crude oil slipped 64 cents to $93.00.
Rocky Mountain producers sense that expected lower prices might be somewhat averted this summer should hydro supplies from the Pacific Northwest fall short along with additional pipeline capacity to Mexico. “The moisture content of the snow in the Pacific Northwest is good, but the flows over the Dalles Dam are below last year, and if they get some dry weather, there could be a situation where California doesn’t have enough in-state power generation, and they won’t be able to import enough from the Pacific Northwest. Things are looking good [price-wise] because come July, there will be 400 MMcf/d in new pipeline capacity to Mexico,” said a Denver producer.
“When they have gotten bombarded with low hydro in the Pacific Northwest in the past that has meant additional gas consumption of 1 Bcf/d, and if both California and the Pacific Northwest have low hydro, you gain another 1 Bcf/d. California is the place to watch. We are going to get hurt in the near term with gas-to-coal switching, but as the temperatures warm up, what is going to happen in the West? They are only talking about bringing back one of the SONGS nuclear plants and that at only 70%.”
The producer admitted that his company had been caught somewhat flat-footed with the expanding basis differentials. “Bentek says we’ve got real problems here in the West with such a high percentage of renewables, and we had been budgeting a 15-cent differential [CIG] and with the cold weather, it has gotten as low as 10 cents. Now we are complaining it’s 27 cents, and in the past it has been over a dollar.”
Gas for weekend and Monday delivery into CIG fell 7 cents to $3.84, and at the Cheyenne Hub gas was quoted at $3.88, 9 cents lower. On Northwest Pipeline Wyoming weekend deliveries eased 4 cents to $3.86, and at Opal gas was seen at $3.89, 8 cents lower. Packages on Transwestern San Juan fell 12 cents to $3.85.
Forecast mild temperatures over the weekend at eastern points offered little incentive to buy gas. The National Weather Service in southeast Massachusetts said “high pressure will remain anchored over the region through [this] week. Dry weather will dominate with mild days and cool nights…though temperatures may become cooler late in the week with onshore winds. No appreciable rainfall will occur through next week.”
Forecaster Wunderground.com predicted the high in Boston Saturday of 57 would rise to 66 by Monday, seven degrees above normal. New York City’s Saturday high of 72 was anticipated to slide to 63 on Monday, 2 degrees shy of its normal high.
Weekend and Monday deliveries to the Algonquin Citygates tumbled 71 cents to $4.68, and gas into Iroquois Waddington shed 30 cents to $4.72. On Tennessee Zone 6 200 L gas came in at $4.43, down 59 cents.
Gas on Dominion traded down 13 cents to $4.07, and deliveries to Tetco M-3 fell 18 cents to $4.20. Gas bound for New York City on Transco Zone 6 slipped 11 cents to $4.24.
Other market centers posted somewhat milder losses. At the Chicago Citygates, weekend and Monday parcels fell 10 cents to $4.15, and at the Henry Hub gas was seen 3 cents lower at $4.16. At NGPL Midcontinent Pool deliveries were 9 cents lower at $3.97, and gas at the SoCal Citygates came in 5 cents lower at $4.23.
Futures traders were not particularly bothered by the soft finish to the May contract. “I think what we’ve seen over the last five days is nothing more than consolidation,” said Al Levine, principal at Powerhouse, a Washington DC-based trading and risk management firm.
“Ever since mid-morning when prices made their lows there has been a continual advance. I’m not convinced we are in a bearish situation.” In order for him to change his mind, Levine said “I think you would have to see a few days with a close at the bottom of the day’s range. From a chart point of view, it would have to go below $3.85.”
A falling gas rig count is also not likely to dampen Levine’s case for a continuation of the bull market. Oil field services firm Baker Hughes reported that the gas directed rig count for the week ended April 26 dropped 13 to 366, the lowest in 14 years. Horizontal rigs fell by 13 to 1,084, a new 20-month low.
Other analysts suggest that with the temperature factor all but eliminated as a price driver, attention will focus on gas-to-coal switching. Jim Ritterbusch of Ritterbusch and Associates predicted that the market was “likely to see some price consolidation [Friday] within a relatively narrow trading band,” and he thought “the stage is set for a soft pricing environment early [this] week following today’s expiration of the May futures contract.”
“We viewed [Thursday’s] price reaction to a seemingly supportive EIA report as sending off some negative signals as the market was unable to maintain an initial upside response to the data. An expansion back to beyond 800 Bcf in the year-over-year deficit appeared irrelevant, and the market looks more intrigued by some narrowing in the supply shortfall given recent updates to the temperature views. With the market now firmly entrenched in the shoulder period, increased focus will likely be placed on the coal-to-gas switching factor. All indications are that a swing back to the much lower priced coal is developing and will be contributing to some larger seasonal injections going forward than would be implied by other supply/usage forces.”
June Central Appalachian coal futures settled Friday at $59.03/ton, or about $2.56/MMBtu.
Market technicians versed in Elliott Wave and retracement analysis see the bullish case on hold. “While natgas was able to hold above the $4.145-4.121-4.104 zone for a second day in a row, Thursday’s price action looks more like a failed rally attempt than bottoming action,” said Brian LaRose of United ICAP. “Only one way for the bulls to salvage the case for higher highs in this winter to spring advance, carve out an immediate bottom. Expect an immediate test of the prior high at $3.933 on a breakdown.”
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