Post-weekend prices bowed to weaker weather fundamentals in recording mostly moderate losses, from a mere couple of pennies to a little more than 15 cents Monday (a couple of flat to slightly higher points managed to creep into the overall mix). A solid majority of declines were in single digits.
After confounding some traders by moving down, then up in last week’s final two days, the softness to begin this week was much more widely anticipated. Most of the U.S. from the Rockies eastward was predicted to be experiencing below normal temperatures, and this time the forecast was generally correct. And where the National Weather Service’s outlook turned out to be inaccurate — above normal readings in the Northeast (see Daily GPI, July 21) — was also a bearish development for gas prices, as Tuesday’s temperatures were expected to be unseasonably low in the 60s and 70s in most of that region due to widespread thunderstorms.
A dip of 17.7 cents by natural gas futures, which was accompanied by drops in the rest of Nymex’s energy product complex, boded ill for any potential price rally in the near future. That was considered unlikely anyway, because temperatures are expected to continue falling short of midsummer norms throughout the East and in mountainous and coastal areas of the West through about midweek or beyond.
The last major repository of normal heat levels for this time of the year, the desert Southwest and interior California, helped ensure that nearly all of the West’s price drops were less than a dime.
Swing prices fell primarily for milder weather reasons, said a producer whose Chicago citygate sales were on either side of $5.90. Cash was weak relative to the screen while it was trading during the morning, but looked a bit stronger comparatively later in the day, he said. The producer anticipates a bit more weather-based load as the week goes on, but said it would be almost imperceptible since the Chicago area is not expected to reach 90 degrees.
Bearish weather had already arrived in the Midwest before Monday arrived, said a marketer who said overnight temperatures got as low as 49 degrees on the shores of Lake Michigan over the weekend. Forecasts of fairly cool weather lasting into early next week should keep prices on the run for a while longer, he predicted.
Citigroup analyst Kyle Cooper’s final estimate for the upcoming storage report looks for a build between 64 Bcf and 74 Bcf, which he said was up from his initial projection based on pipeline data indicating a larger increase. In an aside note, Cooper said data from the Texas state government “continues to indicate production increases from an area that accounts for roughly 30% of U.S. natural gas production. If preliminary estimates are correct, Texas May natural gas production may be near an all-time high. [These] are only estimates; however, the TRC [Texas Railroad Commission] actually has a pretty good record of estimating final actual production levels.”
As attention started to shift to August bidweek business, a Chicago trader said paper basis had gotten stronger and physical basis got weaker since late last week. Instead of the report of Chicago indexed deals at index minus a penny on Friday, index deals were being offered at minus 3-2.5 cents Monday, while physical basis was minus 2-1 cents. A “little bit” was getting done for August in the Chicago market Monday, “but it doesn’t feel all that liquid yet,” the trader said.
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