Cash prices bounded higher Monday and left futures in the dust as traders cited attractive storage differentials and were ambivalent about the prospects for storage gas flooding the market. At the close of futures trading April had advanced 2.5 cents to $2.351 and May had gained 3 cents to $2.466. April crude oil rose $1.95 to $107.06/bbl.
Storage buying may have caught the attention of buyers seeing present prices as almost too good to be true. “We were selling gas at $1.92 on Friday and now it’s about $2.03-2.05,” said a buyer on Northern. “I did hear some people were buying so maybe they are saying if gas is going to be this cheap, let’s start putting it in storage.”
With physical gas at many points $2 or less, and with December futures settling at $3.355, the appeal of “buy now, sell now” certainly resonates.
“It certainly makes sense, but that’s not what we are doing,” the buyer on Northern said. “Northern Natural does not want you to start storing this early, but other pipelines may have more flexibility where you can inject and withdraw. We have to get into a May dead month where we can’t do anything and they have to do something operationally. We don’t have the warm, fuzzy pipeline that others may have.”
The buyer said they were considering a “storage play” where they would sell April gas and buy June and “that would be about the only storage play we could do. We have a 36-cent rollover charge on whatever is left in storage that we don’t get out. So if the differential between April and June is less than 36 cents, it makes sense for us to do that.”
April futures settled 22 cents less than June on Monday.
Northern Natural Ventura and Northern Natural Demarc were quoted about a dime higher. Chicago Citygate was higher by a nickel, and NGPL Amarillo was up by more than a dime.
Storage flexibility was heard elsewhere. “I’m hearing some of the storage guys are saying they may let them keep gas in there, but I’m really skeptical of that,” said a Wyoming producer.
Storage gas in the Rockies as elsewhere is plentiful. “I know Clay Basin got down to 9 Bcf last year and they have 30 Bcf in working gas capacity so they have a ways to go. The weather isn’t helping as sometimes you can get a stretch of cold weather that can save you. Unless we get some cold weather in here, I fear the worst,” he said.
Next-day prices throughout the Rockies bounded higher, with most points adding more than a dime. At CIG Mainline quotes were about 12 cents higher and at Opal next-day gas was about the same. Northwest Pipeline Wyoming posted a gain of almost 15 cents.
Rockies gas destined for the West Coast saw prices at Malin rise almost 15 cents higher as well, and that priced it 18 cents above Opal. At PG&E Citygate next-day gas added a little more than a dime, or about 34 cents more than Malin.
Northeast points posted even greater gains. Gas at Algonquin Citygate and Dracut added nearly 20 cents. Iroquois Waddington netted about a dime gain.
The largest advances were reserved for Southern California. SoCal Citygate rose more than a quarter and SoCal Border gained more than 20 cents.
By contrast, futures traders were unimpressed. “It was a quiet day. A few of the spreads moved out, but every time the market looks like it wants to rally, people sell into it,” said a New York floor trader. “I look for a $2.42 high on the week and lows down to the $2.20s, but I don’t see anything crazy happening here.”
Directional traders at both the IntercontinentalExchange and the New York Mercantile Exchange liquidated both short and long futures and options positions for the five trading days ended March 13, according to the Commitments of Traders Report released last Friday. When adjustments are made for differing contract size, long contracts fell by 10,799 and short holdings shed 7,970. For the five trading days ended March 13, April futures fell 5.7 cents to $2.299.
Mike DeVooght of DEVO Capital is calling the fundamentals of the market “negative” and is advising producers and physical market longs to maintain a protective options strategy. “On a trade basis we will continue to hold current positions and view any significant rally from current levels as an opportunity to do some forward sales in the summer strip. Our current producer hedges are about to run out. At this time, and at these price levels, we are not excited about establishing new hedges here,” he said in a weekend note to clients.
DeVooght advises trading accounts and end-users to stand aside of the market for now. “But we are going to purchase October $2.50 puts to cover the summer strip.” He advises the purchase of October $2.50 put options at 25-27 cents to cover the summer strip.
The weather outlook is enough to keep the bears on the prowl. MDA Information Systems in its six- to 10-day forecast said, “The forecast for this period has warmed some since late last week as the majority of the Midwest remains under strong aboves for the five-day average. The anomalies should be less extreme than the near term, however.”
Eastern energy markets are likely to continue to feel the warmth. “While the Northeast may see some variability, the pattern remains a warm one here as well, with temperatures unlikely to even briefly shift to the colder side of normal. The greatest chance of belows remains along the West Coast with a trough nearby. Models are in good agreement on the big picture, differing only in the details. Confidence has bumped back up slightly as a result.
“An upper low could provide more volatility early from the eastern Midwest to East, though major cold risks remain limited. The next round of warming over the Central U.S. mid to late period could contain higher spikes yet again,” the forecaster said in its morning report.
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