Natural gas cash prices overall averaged about a 6-cent gain on Wednesday for Thursday delivery as forecasts called for continued below normal temperatures throughout the Midwest and Great Lakes regions.
Price gains were led by Northeast points, which posted double-digit advances, but all points were in the black with the exception of a few scattered locations. At the close of futures trading May had advanced 6.8 cents to $4.085 and June was up 7.0 cents to $4.127. May crude oil gained 44 cents to $94.64/bbl.
Cooler temperatures have Midwest utilities pulling down storage rather than going to the spot market. “We are still working on storage. We aren’t pulling every day, just on these cold days,” said a Midwest utility buyer. “Last week it was warm enough [that] we didn’t have to pull any at all, but we expect to pull it down for three to four days this week.
“I’m looking to hit about 150,000 Dt on a day like this,” the buyer said Wednesday, “and last week we were only selling about 50,000 Dt.” Even at these prices spot gas “was cheaper than our WACOG. Because of rollover charges and things from last yearm there are charges in the WACOG. That’s why we are looking forward to drawing it down as much as we can, cleaning it out and starting over again.”
Forecaster Wunderground.com predicted much cooler than normal temperatures for areas in the Upper Midwest. Wednesday’s high of 43 in Minneapolis was expected to fall to 37 Thursday and bring snow. Friday was expected to make it to 39, 16 degrees below the normal seasonal high. Chicago’s Wednesday high of 45 was predicted to rise to 54 Thursday before falling to 46 on Friday. The normal high in Chicago this time of year is 57. In Des Moines, Wednesday’s high of 45 was expected to hold through Thursday but inch up to 46 Friday. The normal high in Des Moines this time of year, however, is 60.
“The strong storm system over the Central Plains will become more organized on Wednesday as the main low lifts across the Mid-Mississippi Valley,” said Wunderground.com meteorologist Kari Kiefer. “As the system progresses, a surge of moisture from the Gulf of Mexico will continue to spread northward, while a colder airmass settles in over the Upper Midwest and the Northern and Central Plains.
“This combination will support more snow showers along with periods of sleet and freezing rain on the northwestern side of this system, from Nebraska and the Dakotas through Minnesota and into the northern Upper Great Lakes. Near and north of the low, heavy rain and thunderstorms will accompany the low across the Mid-Mississippi Valley and into the Ohio Valley.”
Gas for next-day delivery on Alliance was up a cent at $4.26, but on Northern Natural Ventura gas was seen at $4.23, 9 cents higher. At the Chicago Citygates, Thursday deliveries came in at $4.25, 3 cents higher, and at Demarcation quotes for next-day packages were up 5 cents to $4.21. On NGPL, Amarillo gas for next-day delivery was about 4 cents higher at $4.08, and on ANR SW Thursday parcels were up 4 cents to $4.02.
In the Northeast, next-day prices surged as temperatures were expected to be well below normal. Boston’s high Wednesday of 59 was forecast to drop to 46 Thursday and 43 on Friday. The seasonal high in Boston is 54.
At the Algonquin Citygates, Thursday gas jumped 55 cents to $4.94 and on Iroquois Waddington next-day gas came in at $4.89, 34 cents higher. On Tennessee Zone 6 200 L, Thursday parcels rose 55 cents to $4.92.
Gains across the Mid-Atlantic were generally more modest as temperatures were expected to be above normal. On Dominion, gas for Thursday added 9 cents to $4.10 and at Tetco M-3 next-day deliveries were seen at $4.32, up 9 cents. Gas bound for New York City on Transco Zone 6, however, jumped 40 cents to $4.84.
Wunderground.com forecasters said NewYork City’s high Wednesday of 68 was anticipated to drop to 66 Thursday and Friday. The normal high this time of year is 59.
Futures traders were thinking the market might be pricing in a surprise in Thursday’s storage report. “I think because of last week’s number [minus 94 Bcf] the market might be looking for a stronger than anticipated withdrawal,” said a New York floor trader. “If it’s a failed rally, that could be the market top.”
Walter Zimmermann of United-ICAP said he is “quite bullish longer term,” but in the near term the situation is quite different. “There is bearish RSI [Relative Strength Indicator] divergence on both daily and weekly charts, and there is a record high speculative length,” he said in a note to clients. “This is an ominous combination that suggests big trouble ahead for the bulls. Near term, however, further upside is indicated.”
If forecasters are correct, the deficit to last year’s storage levels and those of the five-year average will widen following the 10:30 a.m. release of natural gas inventory data. Last year 11 Bcf was added to underground storage and the five-year average stands at a build of 15 Bcf. IAF Advisors of Houston forecasts a withdrawal of 9 Bcf and Bentek Energy is looking for a pull of 8 Bcf utilizing its flow model algorithms. A Reuters survey, however, came up with an average 21 Bcf withdrawal in a poll of 21 traders and analysts. The range on the poll was a pull of 1 Bcf to 67 Bcf.
Could the ongoing series of storage draws finally be coming to an end? Expectations are for a small draw. Kyle Cooper of IAF Advisors forecasts a 9 Bcf withdrawal, but heating requirements impacting next week’s storage report are sharply lower in major energy markets. For the week ending April 13, the National Weather Service forecasts much lower accumulations of heating degree days (HDD). New England is expected to see 72 HDD, or 75 fewer than normal, and New York, New Jersey and Pennsylvania are expected to have 59 HDD, or 70 fewer than normal. The Midwest from Ohio to Wisconsin is predicted to have 95 HDD, or 38 fewer than normal.
Tim Evans of Citi Futures Perspective noted that prices eased on Tuesday, “despite updated temperature forecasts that were slightly more supportive than a day ago, suggesting that the focus is shifting more toward the seasonal warming trend that will mean declining storage withdrawals and then rising net injections. Expectations for Thursday’s storage report for the week ended April 5 seem to be centering around a net withdrawal of 15 Bcf or so, a big step down from the 94 Bcf draw in the prior period although still supportive compared to a 15 Bcf five-year average net injection.”
Longer-term weather forecasts suggest a cooling trend. Commodity Weather Group looking beyond the 11- to 15-day period said, “The CFS [Climate Forecast System] has trended cooler for the Midwest, East and South for the 16-30 day range that includes the end of April and early May. They show more upper-level support…too with ridging in the West and some ridging in the North Atlantic around southern Greenland. A broad cool trough sits in the middle of that for the eastern half of North America. This is similar to the pattern that is developing on the 11-15 day ensembles currently.”
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