The cash natural gas market bounded higher Friday by 12 cents, encouraged by Thursday’s and Friday’s strength in futures as well as weather forecasts calling for continued cool temperatures. However, the average rises to 15 cents once slip-sliding quotes on Algonquin and portions of Tennessee are factored out.
Nearly all points experienced double-digit advances. A handful of points settled at more than $4. Futures continued their march higher and reached a four-month high with the April contract ending at $3.872, up 6.0 cents and May, adding 6.1 cents to $3.909. April crude oil rose 42 cents to $93.45/bbl.
A Rocky Mountain producer was loving gains on CIG but was unsure whether the strength would continue. “I think we may need a little friendlier weather. It’s 70 degrees in Denver, and I am not complaining, but it’s tough to tell this time of year. A lot of times there is maintenance going on; Kern River had a restriction the other day, and you are getting into the season where there will be maintenance on pipelines and storage facilities. There will be some goofy-looking differentials, but only for a few days.”
The producer added that the strength in the market could be explained by storage comparisons to a year earlier. “Ninety percent of the change in gas prices can be explained by changes in storage levels versus one year ago, not five years ago as some have argued, That’s the best indicator I have seen. The problem is predicting it [change in storage].”
Thus Thursday’s 13-cent rise in April futures becomes more understandable since the storage deficit relative to a year ago grew from 361 Bcf as of March 1 to 440 Bcf as of March 8, according to Energy Information Administration figures. In the upcoming report, the year-on-year deficit is likely to widen further. Citi Futures Perspective analyst Tim Evans estimates a 71 Bcf draw for the week ended March 15 versus a 0 withdrawal for the comparable week in 2012.
Friday trading for weekend and Monday gas at Opal saw prices rise 15 cents to $3.76, and deliveries on CIG Mainline gained 17 cents to $3.71. A the Cheyenne Hub, quotes came in 16 cents higher at $3.77, and on Northwest Pipeline Wyoming weekend and Monday deliveries were seen at $3.70, up 13 cents. Gas on Questar added 11 cents to $3.71.
At Northeast points falling power prices trumped falling temperatures. According to IntercontinentalExchange, the New York Independent System Operator’s Zone G (eastern New York) price for weekend and Monday power delivery fell $2.39 to $58.00/MWh, and at the New England Power Pool’s Massachusetts Hub, peak power for the weekend and Monday fell $2.45 to $65.66/MWh.
Forecaster Wunderground.com, however, predicted the high Friday in Boston of 43 would slip to 37 by Monday, well below the seasonal norm of 45. In New York, Friday’s high of 50 was anticipated to drop to 43 by Monday, six degrees below normal.
At Algonquin Citygate, gas for delivery over the weekend and Monday fell 79 cents to $7.83, and on Tennessee Zone 6 200 L gas was seen at $7.88, 56 cents lower. At Iroquois Waddington weekend and Monday gas was up 10 cents to $5.84.
Futures traders seem to have been caught a little off guard. “We got above the highs from November at $3.83 in the morning and it looked like there were some stops that went off and some short-covering. That sent prices up to $3.90, where it looked like some traders thought that was a good place to do some selling,” said a New York floor trader.
“There may be a battle [this] week to see if some of this length can hold on and push the market higher or we come back off. I think if we get to $4 you will see some stops go off from traders who have been short this market for the last 20 cents or so. At these levels, I thought we would never get this high, maybe $3.80 to $3.85 on the top. If you put a gun to my head, I think we are going lower. I don’t think the next move is to $4.15; I think the next move is to $3.50.”
Weather forecasts have turned cooler. In its six- to 10-day outlook, WSI Corp. of Andover, MA, said, “[Friday’s] forecast is colder across much of the central and eastern U.S. as a result of recent trends in GFS [Global Forecast System] model guidance with regards to a potential high-latitude wave breaking event over the North Atlantic.”
WSI shows below- to much below-normal temperatures north of a sinuous line stretching from Oregon to Oklahoma to North Carolina and said “confidence in today’s forecast is near to slightly above average as a result of good model agreement with the large-scale pattern evolution.”
It said risks to the forecast include “temperatures run[ning] colder than forecast across the Northeast early in the period, and over the north-central U.S. late in the period. Temperatures could be warmer than forecast along the Gulf States late in the period if a diving trough across the central U.S. induces deep convection a bit further south than what global models indicate.”
Jim Ritterbusch of Ritterbusch and Associates saw Thursday’s exuberant advance as easily explained by forecasts of cooler temperatures and an inventory withdrawal report coming in more that 10 Bcf higher than what the market was expecting. “Although we feel that the $4 mark will be acting as a magnet during the next few sessions, we also have some difficulty constructing a case for a sustainable $4 price handle as long as a supply surplus remains intact,” he said. “We also feel that attainment of a $4 handle will be forcing major shifts in coal-to-gas substitution with this expected cut in gas demand from the EG [electrical generation] sector accelerating supply injections by next month.
“And despite last week’s unexpectedly large drop in gas-directed drilling rigs, we still see a bottom being placed in the gas rig counts this spring with near-$4 pricing providing major incentive toward new drilling. Widespread expectations for year over year production gains in 2013 of around 1-2% could ultimately prove conservative with end of season supply next fall easily exceeding current ideas.”
Tom Saal, vice president at INTL FC Stone in Miami, in his work with Market Profile expected the April contract to test Thursday’s value area at $3.811 to $3.757 before “eventually” testing a second value area at $3.683 to $3.663. Saal is not specific in his timing, but typically the preceding day’s value area is tested the next day, according to Market Profile methodology.
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