Natural gas cash values pushed higher again Tuesday for Wednesday delivery, with gains in the East recording the largest increases as the return of summer heat after weeks of below-normal temperatures sparked gas demand. After exploring gains in morning trading with a high of $3.500, the September natural gas futures contract retreated in the afternoon to close at $3.444, down 1.9 cents from Monday’s regular session close.
With much of the East on Tuesday moving away from temperatures in the 60s and 70s in favor of readings in the high 80s, gas demand for power generation sparked averages to increase from a nickel to 30-plus cents. Algonquin Citygate’s average added 35 cents to $4.31, while Tennessee Zone 6 Line 200 jumped 39-cents to $4.28 and Transco-Leidy Line tacked on 22 cents to $3.02. Gas for Wednesday delivery at the capacity-constrained Tennessee Zone 4 Marcellus was the outlier of the day, dropping a penny to average $2.55.
“I don’t think the cash price strength of the last few days is due to maintenance. This looks to me as more of a pure weather event,” said Wei Chen, a natural gas analyst with Genscape Inc. “If you look at the current weather charts, there is an awful lot of red for above-normal temperatures on the map.”
However, Chen told NGI she believes the physical gas price strength will be short-lived. “I think what we’re seeing is only a short-term bump up. Once the weather calms back down, so will prices. The current 11- to 15-day weather outlook still looks warm, but definitely not as hot as the six- to 10-day outlook.”
Looking beyond temperatures, Chen said she thinks fundamentals for the Northeast region look pretty bearish. “I don’t see this strength sticking around beyond a week unless we get much-above-normal temperatures for the rest of the summer.”
Elsewhere, physical price gains were mostly contained to a nickel or less. The Henry Hub in South Louisiana picked up 2 cents to average $3.48, while in the Midwest, Chicago Citygate and Michigan Consolidated each added about 4 cents to $3.61 and $3.70, respectively.
The story remained the same in the West where PG&E Citygate and SoCal Citygate each moved 4 cents higher to $3.81 and $3.77, respectively, while El Paso non-Bondad increased by a nickel to average $3.44.
Looking ahead, most market watchers are in agreement with Chen that the recent run-up in cash and futures values won’t stick.
“Natural gas prices are moderately higher on forecasts for warmer-than-normal temperatures over the balance of the month,” said Tim Evans, an analyst with Citi Futures Perspective in New York. “The arrival of hotter temperatures in the Midwest and Northeast this week is also supporting the cash market, with some quotes moving to premiums over the September delivery futures. However, we continue to see risk that temperatures will actually still be cooler than the five-year average, translating into above average storage injections and an expanding year-on-five-year average storage surplus.
Taking an early look at Thursday’s DOE storage report, Evans said industry expectations are centering around the 65 Bcf mark, a step down from his 77 Bcf estimate, with some seeing evidence of some coal-to-gas switching at prices under $3.40.
However, even a 65 Bcf injection would still be bearish when compared to last year’s date-adjusted 43 Bcf refill for the week and the five-year average net injection of 56 Bcf.
The abrupt changes to the weather forecasts have prompted analysts to refigure their storage estimates. “The warmer temperature expectations are forcing a shift in storage ideas in reports to be released beyond this week,” said Jim Ritterbusch of Ritterbusch and Associates.
“This week’s temperature trends appear to have upped CDDs [cooling degree days] enough to briefly interrupt a trend toward year-over-year deficit contraction. In other words, while another strong EIA build of more than 25 Bcf in excess of last year could develop in this week’s data, next week’s release could show a build proximate to last year’s upswing. Nonetheless, we still see longer-term trends as favoring a year-over-year contraction that could ultimately see a supply peak in early November established within about 20-30 Bcf of last year’s exceptionally large supply.”
From a trading perspective, Ritterbusch sees the recent gains as corrective. “[W]ithin a long-term bear market, we are now leaving open the possibility of some additional price gains this week that could carry September futures up to about the $3.52-3.54 area before this August advance has fully played out.”
Addison Armstrong of Tradition Energy also sees the recent price rise stalling. “Indications of increasing coal-to-gas switching from low gas prices and expectations of increased cooling demands due to forecasts calling for above-normal temperatures in the upper Midwest in the next 10 days has helped catapult gas prices nearly 12% over the past couple weeks. [F]urther gains are likely to be curbed by expectations for a fourth consecutive above-average storage injection and the fast approaching start of the slack demand shoulder season,” he said.
Looking forward to September, Weather Services International (WSI) said Tuesday that the Southeast, Mid-Atlantic and North Central regions of the country are expected to see cooler-than-normal temperatures, with everywhere else experiencing warmer-than-normal conditions (see related story).
Cooler-than-normal temperatures in the Midwest and Mid-Atlantic regions in September should help keep electrical loads below seasonal norms and push power prices and implied market heat-rates lower, according to Energy Securities Analysis Inc. Senior Analyst Chris Kostas, who analyzed WSI’s forecast. “Delivered natural gas in those regions should also see downward pricing pressure,” Kostas said.
© 2021 Natural Gas Intelligence. All rights reserved.
ISSN © 1532-1231 | ISSN © 2577-9877 |