Cash prices were mixed on Thursday with most points up or down a few cents but many sources had bearish expectations for Friday because of the 9-cent drop in November futures on Nymex and an apparently bearish storage report.

Although the Energy Information Administration reported a relatively small injection of 42 Bcf, the report failed to show the more significant impact that was expected from Hurricane Lili. Furthermore, working gas levels now stand at 3,080 Bcf with four more weeks still left in the injection season.

However, production continues to be shut in from the hurricane, and some observers expressed concerns about the supply situation if heating demand picks up substantially this fall. The Minerals Management Service said that production shut ins fell to about 1.1 Bcf/d Thursday from 1.3 Bcf/d on Wednesday, which shows that it may take a while before damaged platforms are repaired. About 151,070 b/d of oil is still being curtailed, and 20 platforms remain evacuated.

MMS spokesman Barney Congdon said so far producers have reported damage to five platforms and five rigs, some of which were actively producing gas and oil. But he said the damage was far less severe than originally expected.

“The infrastructure that’s out there has really improved [since Hurricane Andrew in 1992]. We had a lot of old platforms out there when Andrew hit, but many of those were wiped out and replaced,” said Congdon. “We’ve also had quite a few revisions since then in structural analysis qualifications when new platforms go in. Lili went through a busy area right up the middle, but I think the offshore damage was pretty insignificant compared to the onshore damage. We were expecting a lot more damage going in but it just really wasn’t there.”

The story in the Gulf Coast spot market on Thursday continued to be the unusual basis spreads in the wake of Lili. For example, Trunkline ELA, which typically trades at a 12-cent or greater discount to the Hub had traded much closer and even at a premium to the Hub last Friday. “As more supply comes back following the damage from the Diamond Offshore Drilling incident, Trunkline ELA prices are returning to their usual discount to the Hub,” an East Coast marketer said pointing to Trunkline ELA’s dime discount Thursday.

Another example of an abnormal spread is at Transco St 65, which was as much as a dime above the Hub Thursday compared to averages this month of about 6-7 cents. However, Transco basis is “out of whack because of scheduled maintenance at Station 62, which is decreasing supply into Zone 3 by about 1 Bcf/d,” according to the marketer. “It doesn’t look to be a long-lived price anomaly, as the maintenance began Wednesday and ends Friday. Even on a big pipe like Transco with total deliverability of about 7.3 Bcf/d, knocking 1 Bcf/d off the system has price ramifications,” he said.

While Transco Station 65 basis was strong, it didn’t help the weak spreads in the Northeast, said another observer. “The spreads are laughable. We shut down transport because you can buy it delivered cheaper. New York traded 30 cents over, Tetco M3 was about the same.”

New York prices opened near $4.30 and crumbled to the low teens on IntercontinentalExchange and then even lower in regular trading to about $4.05, another he said. “We’re going to be at 3.2 Tcf in storage no problem unless another hurricane wipes out more production or we have a massive cold snap,” said one trader. “But New York prices have no room to fall right now because Station 65 has been so strong in the low $4s and people have to cover transport costs. It’s a pretty weak basis spread in New York right now so it shouldn’t get much weaker.

“But there’s not much demand up here. All of our power plants in the Northeast are down right now because the spark spreads aren’t there so we’re selling to refineries. The utilities aren’t even out hitting it today. I guess they are just topping off storage right now. It’s stagnant out there. There’s very little volume trading.”

Another Northeastern region marketer said Wednesday and Thursday were the “calmest two days in over a year. I’m hoping it’s just a lack of weather and not a sign of the times.”

In the Midwest, Dawn prices slipped a little to about flat with the Hub from trading plus 7-8 cents recently. “I think it was a reaction to the Midcontinent prices which got smacked down a bit and rippled through to the Midwest,” said a Midwestern utility buyer. “Cash fell because of Nymex, which was down because of the higher than expected storage number, and because of Gulf production continuing to come back on.

“The market is on uncertain footing here with storage levels high and production expected to be down about 5% this winter compared to last,” he said. “But I still think cash is very strong for this time of year relative to the November contract, and I would anticipate it getting even weaker over the course of the next week. I think cash could move as much as 20-30 cent back from November. I bet Dawn will open tomorrow in the high $3.70s and fall from there.”

In the Southwest on Thursday, prices were flat to down a few cents with Waha in the low $3.70s, Keystone down a penny or so in the low $3.60s, SoCal Border down a few cents to the low $3.40s and San Juan Basin prices (Blanco) flat. “I really thought we would get a little bump because the futures board was up early to the mid $3.90s, but we didn’t get much of an uptick. The weather is pretty nice in Texas and Arizona right now. We have a shot at our first heating load in Texas over the weekend or on Monday morning. The only reason there’s any demand at all right now is because of some San Juan maintenance outages on El Paso, which put a little pressure on Permian prices. And there are three nukes down in Texas — Comanche Peak, South Texas 1 and Palo Verde.” He noted power prices in Texas were in the mid $30, which is strong considering the lack of hot weather. “We went through all of August and didn’t trade those kind of power prices.”

Salomon Smith Barney meteorologist Jon Davis released his winter weather outlook on Wednesday calling for more normal temperatures than last winter, which was much warmer than normal. Davis said a lot depends on how strong or weak the current El Nino becomes. He expects the El Nino event to remain weak, leading to normal temperatures rather than above normal temperatures. However, if there is an increase in Pacific sea surface temperatures, then the odds increase in favor of a warmer than normal winter.

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