Physical natural gas prices on average fell a penny in Tuesday’s trading as a weak screen, soft power market and lack of weather developments kept buyers and sellers from needing to pursue much in the way of incremental volumes. Most major trading hubs were down a few pennies, and in the Northeast quotes were mostly balanced on either side of unchanged. The East was unchanged to a penny or two lower, and at the close of futures trading June was down 9.1 cents to $3.920 and July had fallen 9.0 cents to $3.974. June crude oil slumped 54 cents to $95.62/bbl.
Weather forecasts were mostly centered around the development of spring storms and turbulence rather than any incursion of unusual temperature patterns capable of increasing energy demand. “A lingering low will maintain wet weather conditions in the East on Tuesday, while low pressure moves inland across the West with scattered precipitation,” said Wunderground.com meteorologist Kari Kiefer.
“In the East, a slow-moving low will begin to shift slightly eastward in the Southeast, while an associated frontal boundary reaches across the Mid-Atlantic states. Winds wrapping around the system will continue to pull ample moisture from the Atlantic Ocean inland, kicking up areas of scattered light to moderate showers from the southeastern corner of the nation northward through the eastern Tennessee Valley, the Mid-Atlantic, and Lower Ohio Valley. Periods of heavy rain are expected to develop just north of the associated frontal boundary in parts of North Carolina and Virginia.
“In the West, shower and thunderstorm activity will pick up across the West as a closed low over California moves inland and draws moisture across the Four Corners and Great Basin. Expect light to moderate showers, high elevation snow, and chances of thunderstorms to develop from the Sierra Nevada eastward through the Central Rockies. Showers and thunderstorms are also expected to spread into the Plains as an associated warm front lifts into the Central Rockies and the Southern Plains.”
Temperature patterns across major energy markets were expected to be nominal. Wunderground.com forecast that Tuesday’s high in Boston of 70 was expected to fall to 66 on Wednesday and rise to 68 on Thursday. The normal high in Boston is 63. Chicago was expected to see its high of 68 for Tuesday hold into Wednesday and Thursday. The seasonal high in Chicago is 67. In Los Angeles Tuesday’s high of 69 was expected to slide to 66 Wednesday and Thursday, 8 degrees below normal.
“Sooner or later the market will pick up again. We’ll get a little 90 degree weather, and the markets will get more active,” said a northeast marketer.
The market for natural gas-fired generation was weak as well. “Power brokers are long power and trying to unload it. Loads are down, and they have power to sell,” he said.
Power prices at major trading centers showed no clear trend. IntercontinentalExchange reported that next-day power at the New England Power Pool’s Massachusetts Hub rose $1.56 to $45.43/MWh, but deliveries to the Electric Reliability Council of Texas North fell $2.12 to $35.35/MWh. Peak next-day power at Mid-Columbia eased 16 cents to $31.53/MWh.
At the Algonquin Citygates next-day gas eased about 4 cents to $4.21, and at Iroquois Waddington gas was quoted at $4.49, up a 4 cents. On Tennessee Zone 6 200 L Wednesday packages fell 3 cents to $4.19.
Prices at eastern points fluctuated around unchanged. On Dominion gas was seen at $3.91, flat with Monday, and on Tetco M-3 next-day deliveries came in at $4.05, down a cent. Gas headed for New York City on Transco Zone 6 slid 2 pennies to $4.04.
At major market centers quotes were flat to lower. At the Chicago Citygates next-day packages were quoted at $4.00, unchanged, and at the Henry Hub gas was seen at $3.88, down 5 cents. At El Paso Permian gas for Wednesday delivery changed hands at $3.78, down 3 cents and at the SoCal Citygates gas came in at $4.10, 4 cents lower.
Futures traders said that for the most part prices languished at the low end of the day’s range for most of the session. “We traded up to a high of $4.006 but settled at $3.920. $4 now has to be considered the new resistance,” said a New York floor trader.
Top traders see a weak front end of the board and suggest trading it accordingly. “We are maintaining a very short-term trading theme in which the market will be posting some fresh recent lows by a slight margin while also gravitating back to around the $4 mark per nearby futures until Thursday’s storage release provides additional guidance,” said Jim Ritterbusch of Ritterbusch and Associates.
“Despite the entrenchment of the shoulder period, the temperature factor can still be relevant, and we would note that current forecasts are advising limited demand for either heating or cooling requirements. Amidst such an environment, physical pricing tends to slide lower in the process of dragging on nearby futures. At the same time, the more distant contracts such as the winter months tend to remain stable amidst weather uncertainties in making allowance for either a hot summer or a cold start to the winter.
“Given the possibility of some additional spot price slippage due to a virtual lack of weather-related demand, we are still favoring long winter-short summer crack spreads as an attractive longer-term trading strategy despite the fact that June futures are holding near our projected $4 support level for the time being. However, a close below the $4 mark combined with a bearish reaction to Thursday’s storage release would encourage us to add to spread positions such as long January 2014-short July 2013,” he said in a Tuesday morning note to clients.
Tom Saal, vice president at INTL FC Stone in Miami, in his work with Market Profile is looking for a breakout of the month’s initial balance. The May initial balance is between $4.444 and $3.971. According to Market Profile methodology, a breakout either higher or lower will typically lead to the achievement of 50% or sometimes 100% objectives either higher or lower. Saal expects the “monthly breakout/breakdown to test the 50% range.” The 50% breakout targets are $4.681 and $3.735. The 100% targets are $4.917 and $3.498.
Tim Evans of Citi Futures Perspective saw Monday’s 3-cent loss by the June contract due mostly to traders looking ahead and anticipating a plump inventory build in Thursday’s storage report. He said the bulk of the estimates he has seen so far point to an 80 Bcf increase, but his model calculates a 91 Bcf build. “[W]e do think the result does point to the possibility of a further bearish surprise,” he said in closing comments to clients.
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