The cash market was a “Tale of Two Cities” Tuesday as the bulk of locations meandered within a couple of pennies of Monday’s settlement, but the swooning Northeast suffered $1 plus declines as near-term weather was expected to moderate. Futures prices resorted to a mixed finish in light trading, and at the close April had risen 0.1 cent to $2.356 and May had dropped 1.0 cents to $2.462. April crude oil followed weak equity markets lower and tumbled $2.02 to $104.70/bbl.
“All the loads dropped off and temperatures are going to be much warmer than they have been,” said an eastern marketer. “We are expecting a little cooler weather towards the weekend, and then it warms right back up.”
Forecaster WeatherUnderground.com predicted Tuesday’s high in Boston of 38 would jump to 54 by Wednesday and 61 on Thursday. By Saturday the high is expected to reach its normal seasonal high of 43.
The National Weather Service in southeast Massachusetts reported that “high pressure will slide south and east of New England [Tuesday night] during which time a warm front will lift northeast across the region ushering in above-average temperatures for Wednesday into Thursday. A cold front along with a risk of showers impacts the region Thursday night followed by drier but much cooler weather Friday and Saturday. A return to above-normal temperatures may arrive late in the weekend or early next week.”
Whereas just 24 hours earlier prices on Northeast pipes were comfortably perched over $4, the change in the weather pulled the plug at least temporarily on all locations. Deliveries Wednesday into the Algonquin Citygate plunged over a buck and a half and Dracut fell nearly that much as well. Packages into Iroquois Waddington fell about $1.30 and Tennessee Zone 6 200 L retreated more than a dollar and a half as well.
The forward markets weren’t quite as volatile. Algonquin balance of the month was quoted at $2.768 bid and $2.820 offered.
“There may be a couple of winter weather events coming, but if something [weather] drops down and hits the market for a couple of days, I still don’t think we’ll see any long-term cold up there at all,” the marketer said.
On average, physical natural gas prices nationwide fell 7.7 cents Tuesday, but back out the big drops in the Northeast and the decline is less than a penny.
Physical prices in the Rocky Mountains were a penny or two higher, but observers were keeping a sharp eye on storage developments. “When the Clay Basin storage facility goes down, you often see a widening of the basis. It will go down for 10 days to two weeks,” said a Rockies producer. “Not only do companies have to get their surplus gas out of storage, but you can’t inject during that period. That can be negated if we get some cold weather in early April, but in past years if we have spring-like weather I have noticed some widening of the basis.”
The producer did offer the caveat that at this time last year the Ruby pipeline west was not in operation, so that could mitigate basis swings while Clay Basin was down.
Quotes at Opal were a couple of cents higher, and Northwest Pipeline Wyoming and CIG Mainline experienced gains of about a penny. Gas into the Cheyenne Hub was off about a cent.
Gulf Coast quotes were steady to lower. Next-day gas on Trunkline E LA was flat, but deliveries on ANR SE were down a couple of cents and gas into the Henry Hub was off a penny. Katy quotes were down just shy of a nickel and Texas Eastern E LA fell a couple of cents.
Futures traders saw little in the day’s lackluster trade that might give an insight to future price movements. “I don’t know if we are going to pick our heads up and test $2.50, but the market does seem oversold; $2.20 or $2.50, I don’t know which way it will go. It feels like it wants to go to $2.20, but I think we could get a little bounce here,” said a New York floor trader.
“There is no weather here in New York, but my gut tells me we’ll get a short-covering rally, up to the $2.40s.”
It took the market a while but analysts see Monday’s decline as a reconciliation of factors already in place. “While we note the forecasts only match the seasonal forecasts for March temperatures that were in circulation as far back as mid-February, it’s not unusual for the market to be reluctant to trade on the longer-term outlook until confirmed by the 11- to 15-day forecast as it has been now,” said Tim Evans, analyst with Citi Futures Perspective in New York.
“Those who had been long the market on the expectation that reduced drilling activity or coal-to-gas switching (and to a lesser extent nuclear-to-gas switching based on recent nuclear plant outages) are among those disappointed by this renewed price weakness.
“Although the weather maps have a bearish look, with temperatures solidly warmer than normal east of the Rockies, the updates actually look a bit cooler and less bearish than Friday’s runs, and not dramatically weaker than the five-year average result.”
Going forward, Evans sees the storage surplus reaching 830 Bcf as of March 23, and he suggests that there may be a risk of new lows, but “given that prices are already at a low level, we think the market would more likely chop sideways to lower than plunge,” he said in comments to clients.
Tom Saal of INTL Hencorp Futures, utilizing his Market Profile technique, correctly predicted that the market would test Monday’s value area at $2.383 to $2.363. April futures traded in a range of $2.395 to $2.343. Saal is looking for the market to test a second value area at $2.590 to $2.446.
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