Shrugging off prior-day screen weakness, natural gas cash market points on Wednesday for Thursday delivery linked together a third consecutive day of across-the-board gains, with most points adding between 38 and 60 cents.
Some of the strongest points were in the East, where at least a few averages gained 60 and 70-plus cents. The gains at all points were made even more impressive because November natural gas futures offered no support on Tuesday by dropping 10.7 cents. The cash market will likely be left to its own devices on Thursday for Friday delivery as front-month futures added just 2.4 cents Wednesday to close at $4.904.
After three consecutive days of significant strength in the cash market, some market participants were seriously reconsidering their stance on the market’s position. When the cash-to-futures spread was well over $2 as recently as Monday, traders said the convergence — when it occurred — would likely be led by futures coming down to meet cash. Now with the Henry Hub sitting only $1.20 below November futures, traders are realizing that the market doing the converging is cash.
“Usually the cash market respects fundamentals, but I’m not sure what is going on here,” said a New York trader. “Based on the storage situation, the cash market is going the wrong way. At least the gap is narrowing. A spread of more than $2 is pretty ridiculous. If it doesn’t come in by the November expiration, there could be trouble. A lot of term deals for physical gas are predicated on the final settlement of an expiring contract. These guys with term deals would end up paying way over the cash market if the spread doesn’t converge.
“On the futures side, I’d be surprised if this thing gets over $5.200 because we have major resistance at $5.100 and $5.190,” the trader said. “Now I wouldn’t be shocked if we did, but I think we are going to have another dip before that occurs.”
The over-gorged storage situation is not expected to get any better Thursday morning when the Energy Information Administration releases inventory data for the week ending Oct. 2.
Bentek Energy is projecting an injection of 74 Bcf, which would bring current stocks to a record high of 3,663 Bcf, besting the previous record, which was only set a week ago. The research firm expects a 42 Bcf build in the East Region, a 24 Bcf addition in the Producing Region and an 8 Bcf increase in the West Region.
“A 74 Bcf injection will bring inventories to within 94% of EIA estimated peak capacity of 3,889 Bcf, and 85% of EIA design capacity of 4,313 Bcf,” according to Bentek in its weekly storage note. “Many of the nation’s largest facilities are approaching capacity with Dominion and TCO leading the way at 99% and 98% utilization. ANR is currently at 93% utilization and National Fuel is at 92%. Out West Socal is currently at 95% utilization and PG&E is at 94%.”
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