Cash natural gas prices overall jumped on average more than 10 cents Monday, largely driven by weather reports calling for a brutal nor’easter to pummel New England and the Mid Atlantic. Gulf locations softened, but California locations bounded higher. At the close of trading December futures were unchanged at $3.554 and January had slipped 0.2 cent to $3.678. December crude oil added 79 cents to $85.65/bbl.
Cold, but relatively mild cold by northeast standards, had buyers seeking offers for next-day gas and prices shot higher, although traders suggested much higher prices could be forthcoming.
“New England is a weird market right now. If it’s like this and the temperatures are really not that cold, what would it be when they are? Right now people are holding back storage, and once the storage programs kick in, everyone has their programs for that, but prices this winter are likely to hit over $10 on Algonquin and Tennessee,” said a Houston-based marketer.
Northeast prices pogo-sticked higher as traders had to factor in a forecast storm. Quotes at Algonquin Citygate traded as high as $7.50 with prices settling at $6.76, up $1.54, and deliveries into Iroquois Waddington jumped $1.02 to $5.55. Next-day gas on Tennessee Zone 6 200 L was $1.65 higher at $6.76.
“I think this forecast storm is shaking some people by the ears,” he said.
AccuWeather.com forecast that “A nor’easter will take aim on the mid-Atlantic and New England beginning on Wednesday. Rain will overspread New York City around the midday hours and continue heavy at times into Wednesday night,” said Brian Edwards, a meteorologist.
He said that the Tri-State area, already digging out from the ravages of Hurricane Sandy, will be impacted with another round of rain, wind and coastal flooding beginning Wednesday as “winds will kick up out of the northeast, possibly gusting to between 60 and 70 mph. Temperatures will remain on the chilly side with highs in the middle 40s on Wednesday. Temperatures will likely fall to near 40 while the rain is falling. When you add in the wind chill factor, it’ll feel like it’s near freezing at times.”
Although buying at Northeast points had a strong weather component, the marketer said other locations showed strong buying interest for power generation. “We’ve been doing a lot of business with power generators. They are making lots of money and are buying next-day volumes as well as intraday. They are constantly re-evaluating their situation with weather, demand and the markets and everything says ‘buy, buy, buy.'”
Strong power prices added to the gas buyers’ enthusiasm. IntercontinentalExchange reported that next day power (day-ahead locational marginal prices) at the New England Power Pool’s Massachusetts Hub rose by $10.20 to $61.31. At New York Zone A next-day peak power jumped $10.25 to $44.00.
If the exuberant price jumps of the Northeast are factored out, the day’s market advance is just under a nickel, and points farther south were mixed. Tuesday deliveries on Tetco M-3 were 8 cents higher at $3.68, and gas into New York on Transco gained 25 cents to $3.85. Buyers of next-day gas on Dominion found quotes 4 cents lower at $3.45.
Gulf points generally weakened. ANR SE was quoted at $3.31, down 7 cents, and Tennessee 500 L was seen 2 cents higher at $3.40. Deliveries to the Henry Hub fell 6 cents to $3.34.
California points scored double-digit gains. PG&E Citygate was quoted at an average $3.79, 11 cents higher, and SoCal Citygate were seen 20 cents higher at $3.74. SoCal Border points came in at $3.67, up 19 cents, and El Paso S Mainline was 17 cents higher at $3.71.
Futures traders see the bullish case on the ropes. “[We] peg $3.461-3.405 as the last line of defense for the bulls. Carve out a bottom from this support zone and the bulls will have an opportunity to stage a rally into late November,” said Brian LaRose, a technical analyst with United ICAP.
He added that if the market “Fail[s] to carve out a bottom, expect a retracement of the $1.902-3.851 advance.” An average seasonal decline of 42% from $3.851 targets $2.233 for early February. Sell stops below $3.390 are encouraged, he said in a note to clients.
Weather forecasts turned warmer for eastern and Midwest energy markets in the medium term. MDA Information Systems in its six- to 10-day outlook forecasts above- to much above-normal temperatures north and east of Chicago, including New England. The western U.S. from the Northern Plains to desert Southwest is expected to be cooler than normal.
“This period includes a highly amplified start, with strong belows over the Rockies and strong aboves in the Midwest. The warmth will progressively shift eastward into mid-period as the cold dives southward through the Plains and Texas. As compared to Friday, the net result from the West to Texas and the Southeast is a bit colder given the stronger penetration of the trough, while the Northeast meets expectations with an above-normal average.
“The large-scale themes of this highly variable pattern are agreed on by the models, though they tend to differ in the details, especially past mid-period.”
Longer term, analysts see higher prices going into 2013. Raymond James & Associates said it sees the large amount of coal-to-gas switching that has already taken place as readying the market for a stout advance. “Going forward, rising industrial gas demand, stagnating North American gas supply, and normal weather should tighten the U.S. gas market to the point of reversing some of the coal-to-gas switching that occurred in 2012. Simply put, we think U.S. natural gas prices will rise enough in 2013 to drive over 2 Bcf/d of gas demand back to coal-fired generators,” analysts Marshall Adkins and James Rollyson said in a recent report.
“Normally, this transition would occur slowly and gradually through the year. However, 2012’s abnormally mild winter is leaving 2013 well positioned for sharply higher natural gas prices (and gas-to-coal switching) this winter. That means investors should expect a sharp spike in gas prices this winter and lasting into the spring. Likewise, look for a sharp y/y decrease in switching-driven gas-fired generation demand beginning this winter and lasting though the spring. At the end of the day, look for gas- to coal-fired switching to keep a lid on natural gas prices as we move through the second half of 2013.”
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