Adding to the week’s already strong run, cash points took the streak of unanimous gains to four on Thursday as physical gas prices for Friday gas delivery continued to close the gap with futures prices.
Gains across the country ranged from just under 30 cents at Malin to a little more than 70 cents on El Paso South Mainline, according to IntercontinentalExchange data. Even the bearish news that another 69 Bcf was injected into underground natural gas storage, which pushed working gas levels to a new all-time record of 3,658 Bcf (see related story), couldn’t dampen the cash market’s rally, which began on Monday and showed no signs of slowing down.
“Cash has been really strong all week, which is a little surprising considering the current fundamentals,” said a Northeast utility trader. “Sure, we’re entering the winter heating season, but come on…as it stands right now we’ve got enough gas for two winters and the kicker is the injection season is not over yet. We likely still have another four to six injection reports left, which could have storage popping at the seams entering the 2009-2010 winter season.”
Seam-popping could be a reality if injections stay along their current track through the Oct. 31 traditional end of the refill season. Bentek Energy noted on Wednesday that many of the nation’s largest facilities are approaching capacity with Dominion and TCO leading the way at 99% and 98% utilization. ANR at 93%, National Fuels at 92% and SoCal and PG&E at 95% and 94%, respectively.
“If injections follow the level of the five-year average for the remainder of the injection season then inventories will end the season at 3,899 Bcf,” Bentek said. The research firm added that if that number is achieved it would eclipse the Energy Information Administration (EIA) estimated peak capacity of 3,889 Bcf, but fall short of the EIA design capacity of 4,313 Bcf.
“I know some regions of the country are beginning to get chilly, but we are going to need an extremely long, cold winter in order to even make a dent on storage and begin to balance out this very lopsided supply-demand unbalance,” the trader said. “I know that tons of rigs have been laid down as producers scale down their activity due to low prices, but the economy — and therefore demand — have not made a comeback yet, so I’m not sure this price strength is warranted, especially now. With customers’ budgets so tight it could end up being a ‘put another sweatshirt on’ type of winter.”
Much has been made recently about the extremely large gap between Henry Hub cash and the front-month futures contract, with most spectators concurring that the futures market would likely come down to cash values rather than the other way around due to current weak fundamentals. It turns out everyone was wrong. The cash to futures deficit spread went from $2.398 on Friday, Oct. 2 to just 72.3 cents on Thursday, and the Henry Hub average was the one doing the heavy lifting. Over that time span, November natural gas futures only gained 24.5 cents from $4.718 to $4.963, while the Henry Hub cash average jumped $1.92 from $2.32 to $4.24.
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