With natural gas futures playing a supportive role on Monday, cash point averages on Tuesday for Wednesday delivery continued to record increases across the board.
While combined the gains were not as large as they were on Monday, most points still saw increases of between a nickel and a dime. The increases were spread fairly evenly across the map.
One eastern marketer said the recent strength is nothing new for this time of year. “There is not a ton of fundamental support here for this run. Mostly we’ve got some financial numbers that are moving this thing around a little bit,” he told NGI. “Our understanding is this move higher is pretty standard for May. If you go back and look at the history, out of the last 15 years there were only three years that prices didn’t move up during the month of May. There is nothing that is driving prices fundamentally. Weather is of no impact right now, and even if we did see some temperatures to spark demand, it wouldn’t matter that much because we have so much gas around. Cash is definitely following the screen here.”
The marketer noted that Canada is having a fairly strong impact on cash points. “It seems like Dawn tends to be a pretty good driver of what is happening on some of the other pipes in the morning,” he said.
He said it appears a pattern for prices is developing. “The screen dropped about a dime since Tuesday morning,” he said. “It feels like every morning the strategy should be to go out and buy early and sell late. That seems to be the pattern. That said, a lot of the usual people we deal with weren’t out there buying much Tuesday, at least on the Tennessee and Algonquin. The upper New England area was not as robust as it has been recently.”
Despite the strength, the marketer didn’t see cash points continuing to move that much higher. “There is no one trading basis one way or the other. It is still staying within about a quarter-cent range or so for next month,” he added. “We’re still seeing pretty much all the same pricing, it will just be a function of where the Nymex decides to settle down.”
After gaining 8.6 cents on Monday, June futures gave back 5.6 cents on Tuesday to close at $4.342 (see related story). While June declined by a few cents Tuesday, it only did so after recording a high of $4.494 earlier in the day, a price level not seen by a front-month contract since March 11.
Some market watchers do not agree that the market’s move higher is without help from the fundamentals.
“Natural gas markets continue to climb higher, urged on by modestly supportive fundamental signals,” said James Crandell, an analyst with Barclays Capital. “Three fundamental arguments are providing support for natural gas right now: a warmer-than-normal temperature outlook in the 11-15-day period stoking hopes for higher-than-normal cooling demand; the gas-directed rig count, which has stabilized around 950 in recent weeks; and LNG import levels that continue to measure up lower than expected. Of the three, LNG is the biggest risk as May is still too early in the cooling season for temperatures to meaningfully affect electricity demand, and a stable gas-directed rig count at 950 is still too high, and should lead to sequential production growth from here.”
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