It was difficult to discern a clear market direction Thursday as futures prices soared and plummeted, dragging the cash market behind. The EIA reported a larger than expected 111 Bcf weekly storage withdrawal, which initially sent prices higher, but it wasn’t enough to sustain a rally. Futures ended down about a dime and cash prices were mixed with some points up 15 cents while others were down 20 cents.
Southwestern basis continued to tighten up in large part because of the Operational Flow Order on El Paso and the continued colder than normal temperatures throughout the Midcontinent region. El Paso extended an Unauthorized Overpull Penalty situation on its system because the Washington Ranch storage facility is currently on maximum withdrawal to maintain system integrity because of overdeliveries. The pipeline urged shippers to ensure adequate supply was being delivered into the system. El Paso said it was placing limits on scheduled volumes at interconnects that are under performing.
“Another overpull has been called on Keystone and yet prices were pretty stable,” said an LDC buyer. “I would have thought this would have caused some more fluctuation in swing gas prices, but I guess the costs were already built into the price. Today has been practically relaxing compared to the roller-coaster ride we have been taking in the past week.”
Continued cold in the Midcontinent and Midwest was unable to prevent Chicago, Ventura and Demarc prices from tumbling about a dime on average but basis remained relatively flat to Wednesday levels. Chicago basis tightened a little.
Northern Natural declared a force majeure at its Chatfield Compressor Station in Minnesota because of a vibration problem. The force majeure could last a week the pipeline said. Curtailments should be expected on the LaCrosse/Tomah branchline.
Meanwhile a cold front should drop Northeast temperatures back down to around normal over the weekend. Although prices were mixed in the Northeast, New York quotes came in higher and basis widened pretty significantly.
“Basis spreads were 50-80 cents over the Hub in the Northeast,” said a marketer. “Seasonal temperatures are expected Friday, and we should have small loads for the weekend. The fixed prices were flying around today because of the storage number. Guys were a little nervous, but really trading was fairly benign.”
“Pick your poison,” said another observer. “If you did business early you probably got lower numbers, but if you waited until after the storage report you may have got a kick up since futures jumped to $6.95. But if you did it about 11 a.m. you would have saw lower numbers. It’s almost impossible to characterize what happened today.”
However, he admitted that the trading ranges were a bit more manageable Thursday than on Wednesday when 40-50 cents was common. “It could be this way for the next couple months,” he said.
“We should have another day of big ranges Friday. It is supposed to get pretty da-gum cold down here in Texas. We’re going to get in the 20s Friday night, which is below normal and they are talking snow for Dallas on Saturday. The six to -10-day forecast is calling for continued below normal temperatures in the Southeast and Florida and now most of the East Coast. Colder weather has arrived for most of the country at least temporarily so that may pull prices up a bit. Who knows. I personally think we are well overvalued at these levels. But seriously who wouldn’t?”
The weekly storage number was a little larger than most people expected. According to sources, most forecasts were pointing at about 95-100 Bcf so 111 Bcf was just enough to spark a brief rally. The withdrawal also was 38 Bcf more than the five-year average of withdrawals for the week.
About 68 Bcf was withdrawn in the East, 12 Bcf in the West and 31 Bcf in the Producing region. According to the EIA, there was 2,984 Bcf of working gas in storage on Dec. 5, which was 190 Bcf more than at the same time last year and 79 Bcf more than the five-year average.
According to Thomas Driscoll of Lehman Brothers, over the past four weeks withdrawals have averaged 7.3 Bcf/d, compared to the five-year average of 5.8 Bcf/d. “More severe weather this year added 0.3 Bcf/d to this year’s demand,” said in a research note. “With normal weather, we estimate that withdrawals would have been 7 Bcf/d, or 1.2 Bcf/d stronger than five-year averages. We estimate natural gas storage levels (assuming normal weather) will exit the withdrawal season at roughly 800 Bcf compared with the five-year historical average of 1,098 Bcf.”
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