Excluding the big weather-derived drops at eastern points, physical natural gas fell about 6.5 cents on Monday, a little more than the slip-sliding futures. At the close of futures trading March had fallen 4.6 cents to $2.431 and April had given up 3.6 cents to $2.620. March crude oil jumped $2.24 to $100.91/bbl.
Rocky Mountain producers lamented the low prices, but admitted they had taken precautions. “We saw CIG mainline at $2.39 Monday and that’s terrible, but we have about 60% of our production hedged at $5 so we are OK,” said a marketing manager for a Denver exploration company. “Once those hedges come off we’ll assess the market. We’ll get through this thing, but this is no fun with prices this low.”
CIG Mainline quotes, as well as those at the Cheyenne Hub and points west, fell. CIG mainline was down a nickel and prices at the Cheyenne Hub were off by almost a dime. Opal Plant tailgate was also about a nickel lower, and Northwest Pipeline Wyoming was down a little less.
A warm-up in the Northeast was being blamed for the significant cash price weakness in the region. The Weather Channel (TWC) forecast that the high in Boston Monday of 41 would rise to 45 by Tuesday and 50 on Wednesday.
Prices at the Algonquin Citygates plunged by nearly $1.90 and deliveries to Dracut shed around $1.75. Gas at Iroquois Waddington was lower by nearly $1.40 and parcels into Tennessee Zone 6 200 Leg tumbled about $1.80.
An Ohio Valley buyer said the day’s decline “confirmed his neutral to bearish near-term outlook,” and suggested that some of the price pressure might be storage gas working its way into the market. “One big drag could be the storage that has yet to hit the market. It’s going to be interesting to see how the storage pulls are during this period.”
Pipelines may be cutting customers some slack in terms of their gas withdrawal. “I know we don’t have to take out as much as we used to. That’s really helped us with the warm weather scenario we’ve had this winter. It used to be 65% of your gas you had to take out, and now its 53%,” he said.
In spite of the soft tone to the market futures traders see opportunities. The April 2012-January 2013 period has widened to just above a dollar and “the market has pushed the front end down versus the back end because of the lack of winter,” said Tom Saal, vice president at INTL Hencorp Futures in Miami. “The Commitments of Traders Report shows the best sellers recently have been commercial hedgers and the funds, believe it or not, have been doing some buying. If a buyer’s carrying costs are less than that [wide] differential, it makes sense [to buy the April and sell the January].”
Forecasters are calling for near-term warmth in most eastern and Midwest markets. WSI Corp. of Andover, MA in its six-to-10-day forecast calls for it to permeate a broad area north of an arc bounded by Montana, Arkansas and Vermont. “Above and much above normal temperatures are forecast over the north-central U.S. and most of the eastern half of the country. Anomalies as warm as 10 degrees above normal are anticipated over the northern Plains.”
Forecasts carry risks and WSI admitted that “temperatures may trend warmer over most of the eastern half of the country than currently forecast. Medium range models all advertise the storm track in the East will shift in the middle of the country early next week.”
Analysts contend that at current price levels, a lot of the bearish fundamentals have been taken into account. “Prices seem to be trying to build a bottom, and they are moving back and forth based on temperatures, underground storage numbers and recent promises to curtail output,” said Peter Beutel, president of Cameron Hanover.
He added that stock levels are bearish, and “there is more output than is needed by end-users, and temperature readings have been on the warm side recently, although they dropped over the weekend and are expected to give us a bitterly cold start to this next week. Temperature forecasts continue to be bearish, but prices may have gone as far as they can during this phase of this long-term bear market. They have discounted an awfully large chunk of bearish winter fundamentals in a warm winter with plenty of gas available.”
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