The cash market saw a mix of gains and losses Thursday despite a supportive 22.5-cent increase in near-month natural gas futures the day before. Even with the additional 13.8-cent futures gain on Thursday, cash points nationwide on Friday still might not be able to follow.
While eastern and Rockies points recorded mostly drops on Thursday, the Midcontinent and West Coast remained firm with widespread gains and the Gulf region hosted its fair share of pluses and minuses.
“We saw a pretty good amount of power plant demand Thursday due to the heat,” said a Midcontinent gas trader. “That is keeping the prices up, except for Panhandle Eastern. Even when Nymex shot up, Panhandle did not come up. Panhandle was depressed compared to all of the other pipes in the middle of the country. I think it might be a function of more gas coming from the West on the Rockies Express [REX]. When Rex came on about a month ago, Panhandle started trading lower than other pipes. Overall, the situation is strong prices.”
With extremely high gas prices, the trader added that customers are looking elsewhere for their energy needs in some cases. “One of the utility customers we have been selling to has not been buying lately,” he said. “They say they are getting a lot of hydro because of all the water currently in the middle of the country. They are telling us they can’t touch our gas at these prices. We normally sell them a pretty large amount of gas, but recently it has been zero. The hydro situation is currently very healthy.”
Following the Thursday morning release of what was considered to be a bullish 80 Bcf injection into underground storage for the week ended June 6, July natural gas futures pushed higher, adding to the gains racked up on Wednesday. The prompt-month contract closed Thursday’s regular session at $12.798.
Looking at the Energy Information Administration’s (EIA) 80 Bcf injection report Thursday for the week ended June 6, the trader said that while he was “surprised” that the number was so low, he believes the whole storage landscape has changed, making the EIA report not as relevant.
“While a number of storage companies report their activity to the government, there are a lot of smaller storage players who are not part of the reporting service,” the trader said. “A lot of these smaller independent storage operators are popping up, so when you are looking at the EIA’s storage report every week, you might not be getting a true snapshot of the country’s storage activity.”
Even with futures knocking on the $13 door, some market watchers aren’t so sure the cash market will follow.
“My feeling is that the basis will blow out a bit between Nymex futures and cash,” said an East Coast buyer. “Every time Nymex goes up, cash tries to follow, but it does not go up in the same proportion. There always has been a disconnect between cash and futures, but I think it is going to extend even more, which is going to reflect in the basis. I refer to the cash market as where the rubber meets the road. You have to clear the gas and clear the market. It has nothing to do with hedge funds or speculators because it has to clear the market. There are a lot of other ingredients mixed in Nymex that are not found in the cash market, which is why the two have trouble sticking together.”
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