Physical natural gas prices overall on average added 10 cents Monday as strength at eastern market points along with surging prices at Marcellus locations paced a broad advance. Midcontinent locations were also firm, but all points made gains. At the close of futures trading September had added 2.8 cents to $3.513 and October was higher by 3.2 cents to $3.553. October crude oil fell 50 cents to $105.92/bbl.
A Midcontinent marketer lamented that difficulties on NGPL were limiting shipments of gas from Oklahoma northward. “They are saying that the pipeline is full and are curtailing shipments,” said an Oklahoma marketer. “No one from Oklahoma can get their gas on NGPL, yet there is a huge price differential between Chicago Citygates and the NGPL Midcontinent Pool. No Oklahoma gas is making it to Chicago,” he said.
Hot temperatures in the nation’s mid-section are likely to keep prices elevated for at least another day. “In the Central U.S., hot temperatures will continue to heat up across the Midwest as an upper level ridge of high pressure over the Central U.S. shifts to the east,” said Kari Kiefer, Wunderground.com meteorologist. “Heat advisories will remain in effect for portions of the upper Midwest as daytime highs climb into the 90s to near the 100 degree mark and heat indices reach into the triple digits.”
Wunderground.com predicted that the Monday high of 93 in Chicago would climb to 95 on Tuesday before retreating to 81 Wednesday. The normal high in Chicago is 81. Milwaukee’s Monday high of 90 was anticipated to reach 93 on Tuesday and fall to 82 by Wednesday. The normal late August high for Milwaukee is 78. St. Louis’ high reading Monday of 96 was expected to ease to 95 on Tuesday before climbing to 97 on Wednesday.
Quotes at the Chicago Citygates were seen about 11 cents higher at $3.74 in trading Monday for Tuesday deliveries. At the NGPL Midcontinent pool Tuesday gas was 8 cents higher at $3.51 and deliveries on Panhandle added 11 cents to $3.40. On Oklahoma Gas Transmission next-day gas changed hands at $3.39, 7 cents higher and on the NGPL Amarillo Line next-day deliveries added 10 cents to $3.58.
Higher eastern power prices provided a solid platform for gains in next-day gas prices. The IntercontinentalExchange reported that next-day power deliveries to the New York Independent System Operator (NYISO) Zone A pool (western New York) added $6.97 to $43.31/MWh and packages to the NYISO Zone G pool rose by $18.23 to $55.18/MWh. Power deliverable into PJM West rose by $6.22 to $53.98/MWh.
Gas at the Algonquin Citygates was quoted 42 cents higher at $3.80 and deliveries at Iroquois Waddington rose by 9 cents to $4.07. On Millenium Tuesday gas came in at $3.25, 15 cents higher.
On Dominion Tuesday packages gained 13 cents to $3.28 and deliveries to Tetco M-3 were seen 20 cents higher at $3.58. Gas bound for New York City on Transco Zone 6 jumped 21 cents to $3.68.
At Tennessee Zone 4 Marcellus next-day gas was quoted at $2.37, up 43 cents and on Transco Leidy deliveries for Tuesday gas came in 69 cents higher at $2.67.
Futures trading was light as traders readied for Tuesday’s expiration of natural gas options. “I think traders will try to pin the market right here in the $3.50 area [ahead of options expiration],” said a New York floor trader.
“I don’t see the market trading any higher than $3.70 in the near term,” he added.
Weekend weather forecasts persisted with warm temperatures spread over the northern half of the country from Idaho to Maine and as far south as Texas. “The forecast for this week is essentially on track, with the hottest anomalies expected in the Midwest and Plains. Chicago should see upper 80s to low 90s for most of the week with the hottest being [Tuesday’s] 94 F,” said Matt Rogers, president of Commodity Weather Group.
“Both Texas and California are seeing some hotter changes this week as Burbank [CA] is favored to see middle to upper 90s and Dallas should see 100-plus temperatures again mid to late this week into the weekend. Confidence is a little lower in the six-10 day as models show more variability, but that period mainly covers the typically lower demand Labor Day holiday weekend. The 11-15 day still finds some heat especially in the Midwest, but there is a slow weakening trend as the heat focuses back toward the Pacific Northwest and interior West along with the normal recession of seasonal normals.”
In California, the massive Rim Fire on Monday was nearing the Hetch Hetchy Reservoir, threatening San Francisco and a big chunk of the East Bay Area’s power and water supplies. The San Francisco Public Utilities Commission deactivated transmission lines near the fire and as of Monday had spent close to $600,000 on the open market to buy power supplies (see related story).
Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm, is not yet bullish on the market. “Over the past couple weeks we have seen a technical rally in the gas market. As soon as we hit resistance ($3.55 to $3.60), the gas market failed to move higher,” he said in a weekend note to clients.
“Technically, there is a good chance we will break back to test the recent contract lows. The week’s storage numbers came in with a smaller than anticipated build, which did give the gas market some support this week. Fundamentally, it is difficult to make a bullish case for the gas market. We will continue to hold our short positions.”
Those positions include trading accounts holding on to a short September futures established earlier with the June contract at $4.35 and risking 25 cents on the trade. End-users should stand aside, and producers and those with exposure to lower prices should hold a short September-October strip established at $3.75 to $3.95 and a short November-March strip initiated at $4.50 to $4.60.
Addison Armstrong of Tradition Energy sees an upper bound to further gains. “Gas prices have advanced nearly 14% in the past two weeks to near a one-month high at $3.562 as traders consider the return of heat across parts of the East and increased power sector demand from growing levels of coal-to-gas switching. But the approaching start of the slack-demand shoulder season and near-record production levels of gas are likely to provide resistance to further rallies,” he said in a morning note to clients.
Tom Saal in his work with Market Profile is looking for September futures to test last week’s value area at $3.507 to $3.457 before moving on and testing a second value area at $3.394 to $3.306. If time permits before September futures expire on Wednesday, he sees a third value area worthy of testing at $3.762 to $3.664.
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