Keeping the theme intact of moving mostly as a whole on a daily basis, a vast majority of cash points finished out the week with gains on Friday, recording hikes that ranged mostly from a few pennies to a quarter. A few El Paso points out West were some of the only losers on the day, shedding a couple of pennies apiece. It was an up and down week. Friday’s gains built on increases Thursday. Monday and Wednesday showed overall declines offset by widespread increases Tuesday.
The cash market also received news that the force majeure on El Paso Corp.’s Tennessee Gas Pipeline for certain parts of the South Marsh Island 249 area would remain in effect until March 31. The force majeure, which is affecting 20,000 Dth/d, was called after an explosion occurred late Tuesday in the engine room of a commercial diving vessel that was decommissioning a small segment of ANR Pipeline offshore Louisiana.
“Friday morning saw a little lighter volume than previous days. While the overall day’s volume turned out to be similar to the rest of the week, there were not the early risers who had been trading close to a billion cubic feet by 6 a.m.,” said a Western trader. “There was a bunch of high-priced gas through the week, but some of the spreads dropped off a bit in the Southwest while the Northwest stayed about the same.”
Much like the rest of the week, cash traders were perplexed by the overwhelming price strength in the futures arena. After recording a high of $10.285 on Friday, April natural gas futures retreated to $9.868, down 36.2 cents from Thursday. April crude also recorded a decline, albeit on a much smaller scale. The contract closed at $110.21/bbl, down 12 cents from Thursday.
“We continue to shake our heads as we watch the futures market price strength,” the trader noted. “It is insane. Natural gas at $10 is the highest it has been in a long time. We are certainly not out of gas, so I am not sure what is driving price right now. While it is hard to say whether this elevated price level will stick around for a while, I would think it would be difficult considering the fundamentals. However, based on what crude’s doing, you never know.”
Others are concerned about current fundamentals, especially the ability to refill storage during the upcoming injection season from a lower starting point. Following the 86 Bcf draw for the week ended March 7, working gas in storage stood at 1,398 Bcf, which is 151 Bcf less than last year at this time but 57 Bcf above the five-year average of 1,341 Bcf.
“As the expected natural gas inventory level for the end of March comes into view, with a likely range of 1,200-1,250 Bcf, the restocking process required for 2008 appears daunting enough,” said George Hopley of Barclay’s Capital in a research note Friday. “Starting at a lower level than seen in a number of years, the market would like to try to match end-of-October levels reached in the last two years, ideally above 3,500 Bcf.”
Hopley noted that lower than expected season-ending stocks were likely responsible for the recent strength in natural gas futures prices, adding that back in January, market sentiment assumed that end of March storage would reveal at least 1,400 Bcf in place, if not higher.
“Since the spring of 2003, the carry-over levels have marched steadily higher, and not without good reason. An end-season level of 700 Bcf set that year was deemed unsustainably low by storage capacity operators, potentially risking damage to some facilities,” the analyst added. “In addition, a lower starting point makes achieving ‘near-full’ status by October that much harder.
“The injection season this year starts at a challenging level. It is unlikely to end at level comparable to the last two years. Given the limited range of pricey alternatives available to assist the restocking process (demand destruction or [liquefied natural gas] imports), the forward curve has moved higher and is likely to stay high until bearish signals emerge. This may only happen beyond mid-year, if at all for this injection season.”
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