Natural gas cash prices continued to erode Thursday as mild weather conditions prevailed in many parts of the country. Declines in the East and Northeast were mostly of the 1-3 cent variety, but on the West Coast losses of close to a dime were noted. Futures traders digested an inventory report showing the first build of the season at 11 Bcf, slightly greater than what traders were expecting and prices fell. At the close of futures trading April was down by 9.1 cents to $2.269 and May settled 8.2 cents lower at $2.372. May crude oil dropped $1.92 to $105.35/bbl.
East and Northeast prices eased as weather was forecast to dip to comfortable spring readings. AccuWeather.com predicted the high in Boston Thursday of 83 would fall to 64 by Friday, still well ahead of the season average.
“That’s a big change, but then it gets seasonal and then snow and rain in a week. There is probably some AC load there,” said a Northeast marketer.
AC load will soon be history if forecasters are correct. “Temperatures are forecast to drop below freezing for several hours from portions of Pennsylvania to upstate New York and northwestern New England Monday night,” said Alex Sosnowski, senior meteorologist at AccuWeather.com. He added that “The risk extends farther east into New England and perhaps part of the Mid-Atlantic Tuesday night. In portions of New England, it could be two nights of concern [and] a frost and risk of a freeze is possible around portions of the central Great Lakes, central Appalachians and Mid-Atlantic coast.”
Quotes on Friday gas into Algonquin Citygate fell a penny and deliveries to Iroquois Waddington slid by 2 cents. Tennessee Zone 6 200 L was also seen about a penny lower. Gas into Transco Zone 6 fell 2 cents.
On the West Coast next-day prices at southern California points dropped as temperatures were expected slightly below normal highs, but in northern California prices held steady. AccuWeather.com forecast that the high in Los Angeles of 68 Monday would ease to 65 on Friday and reach 66 on Monday. The normal high in Los Angeles this time of year is 71.
Next-day deliveries at the SoCal border dropped a nickel and gas into SoCal Citygate dropped nearly a dime. At PG&E Citygate prices were unchanged as were quotes at Malin.
At points around the Great Lakes Friday prices also softened. Deliveries to the Chicago Citygate and gas into Consumers were off by a couple of cents. On Michcon next-day gas was quoted 3 cents lower.
Futures trading was dominated by the 10:30 a.m. EDT release of inventory figures, and the bears prevailed. Expectations were that the Energy Information Administration would show the first storage build of the season. Last year 20 Bcf was withdrawn and the five-year average is for a 17 Bcf pull, but a Reuters survey of 25 analysts showed an average 10 Bcf injection with a range of a 2 Bcf draw to a 27 Bcf increase. Dovetailing with the Reuters survey was a similar Bloomberg poll showing a 9 Bcf injection. IAF Advisors calculated a 10 Bcf increase, and industry consultant Bentek Energy forecast 5 Bcf injection.
“We were looking at a build of 4 to 10 Bcf so the number came in on the high side at 11 Bcf,” said a New York floor trader.
“Everything is indicative of negative pricing and oversupply. When we talked to our analysts last week a lot of storage facilities were injecting gas, so this week could have gone either way, a slight draw or slight build.”
Tim Evans of Citi Futures Perspective saw a more aggressive build of 16 Bcf and a continued expansion of the storage surplus. “It will compare with a five-year average net withdrawal of 18 Bcf and therefore add something to the 807 Bcf year-on-five-year storage surplus from March 9. The key question is how much?” His model “points to a somewhat larger and more bearish gain, [and] with ongoing warmer-than-normal temperatures now forecast to continue at least into early April, more bearish storage reports are likely to follow.”
Evans model predicts that the storage surplus will balloon to 962 Bcf as of April 6, “with at least a possibility that it continues to rise beyond that date. We also note that with the winter over, so is the chance that we see a dramatic reduction in the storage surplus. Instead, once the balance in the market does shift, we are likely to see only a gradual downtrend in the storage surplus and modest support for prices.”
Tom Saal in his work with Market Profile correctly predicted April futures would test Wednesday’s value area between $2.336 and $2.316. Thursday’s value area comes in at $2.314 to $2.266 and Saal is not precise on his timing but “typically value areas are filled the next day.”
Saal also calculated a large contango of $1.124 between the April and January 2013 futures. Such a large differential could offer an attractive storage play depending on the 10-month cost of storage. “If you want to buy storage from one month to the next it can cost 10 to 15 cents, but if you are buying storage for one season versus another season the number is a lot lower. If the cost of storage is 50 cents and the difference is $1.20, that’s a no-brainer,” he said.
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