A vast majority of natural gas cash points took their cue from Tuesday’s 10.5-cent increase in September futures to post gains — albeit small — on Wednesday for Thursday delivery. However, if they continue to follow that model, declines could be in store on Thursday as the prompt-month futures contract on Wednesday gave nearly all of the prior-day’s gains away.
Compared to the recent fairly wide swings in natural gas futures, cash market movement has been much more muted. On Wednesday most of the market posted gains of a few pennies or stayed flat. A handful of declines were mixed in across the country.
California, which has been embroiled in a week-long heat wave, was unchanged outside of Malin, which gained 5 cents to average $2.74, and SoCal Citygate, which shaved a penny to average $3.11.
Along the Gulf Coast, change was pretty stagnant on Wednesday for Thursday delivery. The Henry Hub and ANR SE each gained 3 cents to average $2.82 and $2.76, respetively, while the Houston Ship Channel added 2 cents to average $2.83.
Like much of the country, northeastern points were relatively flat Wednesday with gains of a penny or two here or there, but a few did see declines. Texas Eastern M-3 fell a penny to $2.96, while Tenn Zone 5 300L fell 9 cents to average $2.65. On the other hand, Tennessee Zone 4 Marcellus was up 6 cents to $2.51, but that still trailed the Tennessee Zone 4 313 Pool by 22 cents.
Some market watchers see little in the near-term to spur prices higher. “There is some heat in various regions of the country, but so far we haven’t seen any real price spikes in gas, and I’m not sure we will considering the current fundamentals and the amount of time left this summer,” a northeast marketer told NGI. “At the end of the day we have quite a lot of natural gas, so it would take a pretty special event to spook prices.”
The marketer added that natural gas values will likely see a slow but significant boost sometime during 2013. “Lots of analysts are talking about supply and demand coming into a better balance next year as the effects of curtailed gas production due to depressed prices begins to melt away at the supply surplus.” He added “that it’s pretty tough to get excited about gas with a $2 handle,” but believes the market “could be seeing quite a few more threes and fours in mid- to late-2013.”
Stephen Smith of Stephen Smith Energy Associates in his monthly outlook released at the end of July said that stagnant gas production levels, which could fall into a decline before the year’s out, and an increase in gas demand for power generation and as a feedstock could spark a price rebound in 2013 as the supply-demand balance returns to equilibrium (see Daily GPI, Aug. 7). He estimated that these factors are going to take the Henry Hub natural gas bidweek average price from $2.68-2.70/MMBtu for full-year 2012 to $3.70/MMBtu full-year 2013.
By year-end, the price analyst said, the flat production trend of recent months “is likely to evolve into a trend production decline — one that could require several months to reverse.” When looking at the complete picture, “these factors suggest a better supply-demand balance for U.S. gas in 2013,” Smith said.
One day after September and October futures posted gains of 10.5 cents and 10.3 cents respectively, Wednesday was the exact opposite. September dropped 8.6 cents to close at $2.748 and October declined by 8.4 cents to $2.787, potentially giving cash traders some impetus to the downside for Thursday.
However, traders of all stripes are eagerly awaiting the Energy Information Administration’s (EIA) gas storage report for the week ending Aug. 10, where early estimates are for another smaller-than-normal injection.
Bentek Energy is on record with a 20 Bcf injection estimate, while a Reuters survey of 25 industry participants produced an average expectation of a 24 Bcf build.
“The weak build is primarily driven by low Producing Region figures that resulted from high salt dome withdrawals to meet cooling demand,” Bentek said in it’s Analytics Report. “Initial estimates show Producing Region injections have rebounded so far this week, suggesting the strongest draws of the summer may be over.”
The number revealed by the EIA at 10:30 a.m. EDT Thursday will be compared to a 43 Bcf injection, which is both last year’s build for the same week and the five-year average injection.
“An injection of more than 28-30 Bcf may be viewed as a negative feature and could prove capable of igniting a significant selloff,” said Jim Ritterbusch of Ritterbusch and Associates. “But, for the time being, we are still anticipating solid support at the $2.70 level that could prove capable of containing price declines through the balance of this week.”
Some market watchers were expecting a pullback in futures after Tuesday’s stout run up. Ritterbusch said that with a majority of the summer already in the past, price support should be hard to come by.
“We are continuing to emphasize that a major temperature cool down at this advanced stage of the CDD [cooling degree-day] cycle is a significant bearish consideration, especially coming in the aftermath of an exceptionally hot summer,” he said. “This implied drop in EG [electricity generation] demand should accommodate some stability within the supply surplus as the sharp spring/summer contraction in the overhang will be slowing considerably.”
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