July natural gas was mostly quiet Wednesday as traders pushed the contract back and forth between the day’s $6.500 to $6.680 range. After reaching the day’s high late in the session on a little short-covering, the prompt month ended up settling at $6.588, up 8.6 cents on the day.
“I think on Wednesday we saw a short-covering rally and nothing much more than that,” said Ed Kennedy, a broker with Commercial Brokerage Corp. in Miami. “The first two trade days of the week we saw consolidation. We were supposed to get the really hot weather coming into the Boston-Chicago corridor last weekend, but they only ended up getting it for two days. Now we are talking temperatures in the 70-degree area. There is some heat in the South, but not much really showing up in the North.”
Kennedy added that the tropics remain fairly quiet. “There has been the persistent disturbance over the Bahamas for the last week and it is supposedly moving northeast. Two of the models have it backing up over Florida over the weekend with the possibility of it gaining tropical characteristics. What the forecasters mean is that it could turn into a tropical depression…maybe. That could turn into a story by Friday, but that remains to be seen at this point.”
Tropical weather may become a factor, though it is expected to be confined to the Atlantic. AccuWeather meteorologists are monitoring the tropical wave, which is located northeast of the Bahamas, for possible development and movement towards the East Coast later this week. This could result in some potentially heavy rainfall over the weekend for the Mid-Atlantic region. “It is still too soon to determine whether this wave will develop into a tropical system, but if it does, it will be named Beryl, and it could impact the Southeast,” reported meteorologist Lisa Wieser.
Addressing the fresh natural gas storage news that will enter the market Thursday morning, Kennedy said that despite the heat last week, the report did not really concern him. “I would have gone home short tonight off of Wednesday’s rally,” Kennedy advised. “Yes, I know it has been hot in the South, but the North has not followed through. We are also way ahead on storage injections. I think the storage number is the most meaningless thing we see during the summertime. By the end of the injection season we will be full. Look at last year; despite all of the shut-ins related to the hurricanes we still filled storage. It’s no big deal. It really depends on the air conditioning load, and when and if it shows up.”
Kennedy said he is expecting to see a 78 Bcf injection revealed Thursday morning when the Energy Information Administration (EIA) releases its report for the week ended June 16. A Reuters survey of 21 industry players is expecting a 77 Bcf build for the week, while the ICAP derivatives auction held after the close of Nymex floor trading Wednesday revealed a consensus build expectation of 78.2 Bcf. The number revealed Thursday morning will be compared to last year’s 79 Bcf build and the five-year average injection of 95 Bcf.
Top analysts are considering the implications of limited pipeline capacity once storage facilities become full. “We would suggest that the surplus remains sufficiently large to require some allocation of pipeline space by early fall since the infrastructure will likely be unable to accommodate normal injection flows,” says Jim Ritterbusch of Ritterbusch and Associates. He suggested that the allocation process may associate with lower prices and an exceptionally weak cash basis as supply is backed up into the spot markets. “We view such a prospect as providing a major offset to the possibility of an unusually active hurricane season that could potentially curtail production.”
Looking at the longer-term summer weather picture, MDA EarthSat Energy Weather on Wednesday issued its updated summer 2006 outlook. “The July outlook is mostly unchanged again today as trends in the six-to-15-day forecast period appear to bolster support for this general pattern type,” said Matt Rogers, deputy director for MDA EarthSat. “July is forecast to have below normal temperatures across the Great Lakes and mainly seasonal elsewhere across the eastern half of the U.S. The West is forecast to be mainly above normal for the same timeframe. In fact, MDA EarthSat Weather’s forecast for August also continues similar with seasonal to cool in the East and seasonal to warm in the West. MDA EarthSat Weather still anticipates, from a cooling degree day standpoint, that this summer will be near normal vs. the very high demand set last summer (2005).”
In discussing its tropical storm predictions, MDA EarthSat said that with Alberto already in the rear-view mirror, their forecast calls for 18 additional systems before Nov. 30. “The western Caribbean continues to be warm vs. normal, but the central to eastern tropical Atlantic is warming slower than normal — that part of the season kicks in by August,” said Rogers. Despite signs of a weak El Nino developing, the season should still be active, the forecaster said.
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