Futures and cash prices worked lower Wednesday, but physical gas posted sharper losses as forecasts of milder weather prompted cash quotes mostly a dime to 15 cents lower with some spots in the Northeast declining between 20 to 30 cents. At the close of futures trading March had shed 2.4 cents to $2.448 and April had softened 3 cents to $2.598. March crude oil added 30 cents to $98.71/bbl.
An eastern cash trader attributed the day’s decline to forecasts of more moderate temperatures projected for Thursday throughout the region.
Temperatures in the East were scheduled to make double-digit gains Thursday in New York City and Philadelphia and a nine-degree rise in Pittsburgh. Weather.com predicted New York City’s high of 37 Wednesday would rise to 48 by Thursday and remain at 48 on Friday. The normal high for New York this time of year is 40. Philadelphia’s high of 36 was predicted to advance to 48 degrees on Friday as well, six degrees ahead of its seasonal norm, and in Pittsburgh Wednesday’s chilly 31 high was anticipated to rise to 40 on Thursday, equal to the normal high.
Gas into Tetco M-3 fell almost 15 cents and deliveries to Tennessee Zone 6 200 Line tumbled by 25 cents. Gas at Transco Zone 6 non-NY was quoted almost 20 cents lower, while Transco Zone 6 NY shed just over 30 cents.
Buyers and sellers in the Midcontinent have been scrambling as of late. Shippers on the southern portion of the CIG system have been trying to move gas into Opal rather than send it to the East or Midwest. “You are starting to see gas fill up south of Cheyenne on CIG,” said a Rockies trader. “All of us that typically have south system gas and move it to Panhandle or NGPL Midcon have all reversed, and everyone is trying to flow that gas to the north part of the system, specifically over to Opal.
“Opal is now trading 15 cents over Panhandle and has averaged 13.9 cents over for the month. Everyone is trying to get their gas to Opal and some can backhaul it.”
The final destination is California. “Kern, which goes to Socal Border and Opal into Northwest and into Malin, are the objectives. PG&E Citygate is 38 cents over Opal and Malin is 7 cents over Opal. That is the economics we are looking at right now,” the trader said.
In Wednesday’s trading prices throughout the region were quoted anywhere from 14 to 18 cents lower. Panhandle and NGPL Midcon were each off nearly 15 cents. Opal gas for delivery Thursday was almost off nearly 15 cents, while Malin prices fell a few cents more. Quotes into PG&E Citygates dropped nearly 20 cents.
Futures traders were unimpressed with the day’s trading. “There was nothing to write home about,” said Tom Saal, vice president at INTL Hencorp Futures in Miami. Saal is a student of Market Profile and expects the market to test Wednesday’s value area, $2.4610 to $2.4910 in Thursday’s trading.
Traders Thursday will also be looking at the market response to the Energy Information Administration’s 10:30 a.m. release of gas storage inventory figures, and by all accounts the present surplus is expected to ratchet higher. At present natural gas inventories stand at 2,966 Bcf, or 586 Bcf greater than last year and 601 Bcf higher than the five-year average.
For the week ended Feb. 3 a survey of 24 market observers by Reuters showed an average expectation of an 87 Bcf withdrawal with a range of 74 Bcf to 105 Bcf. Ritterbusch and Associates is looking for a pull of 89 Bcf and industry consultant Bentek Energy, utilizing its North American flow model, calculates a decline of 83 Bcf. Last year at this time a whopping 206 Bcf was withdrawn and the five-year average is for a pull of 191 Bcf.
Analysts see the temperature-time continuum as working against higher prices. “We are already out of the ‘heart of winter,’ and any degree-day accumulations from here are likely to be smaller than they would have been six to eight weeks ago,” said Peter Beutel, president of Cameron Hanover, a Connecticut-based energy consulting firm. “Temperatures have been unusually warm over the last few weeks, and they are about to cool down significantly…The problem is that it may not be enough and it may be coming too late in the winter to make any real difference. Typically, traders start thinking about the end of winter in mid-February. March is actually colder than November, but people think of March as the beginning of spring.
“Cooler weather will remain in the midwestern and eastern parts of the nation into next week, but readings are forecast to remain on the warmer side into March. Market observers have noted that this quickly becomes a game of time-temperatures; 10 degrees colder than normal in March cannot make up for warmer readings (than normal) in January,” he said.
Prices are making a beeline to $2.23 support, and in Beutel’s view they “may be trying to build a bottom, but it will take time to develop. Natural gas prices continue to work sideways within a possible double-bottom formation [and] are on the oversold side, but not enough to make a major difference. This market is likely to remain erratic and volatile.”
Other analysts see both the bulls and the bears having work to do to prove their case.
“To signal a larger degree advance is in progress, bulls need to get above $2.651 and $2.736,” said Brian LaRose, analyst with United-ICAP. “To signal a larger degree decline is in progress, bears need to get below $2.399 and $2.322. Clear resistance and the A=C objectives will be our initial upside targets.” Once upside resistance is breached LaRose computes the next objective higher is $2.912 and beyond that $3.266. “Sink below support instead and natgas is headed to $2.114…minimum,” he said in a report Tuesday to clients.
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