The cash market on Wednesday was jerked around like a bull whip by its out-of-control master, the gas futures market on the New York Mercantile Exchange. As futures popped nearly 40-cents higher at the open and soared to the incredible height of $7.55 Wednesday morning before collapsing shortly thereafter, the cash market was dragged behind, albeit at a significant distance. The run-up produced massive trading ranges as sellers scrambled to unload what they could before the show was over.
The Hub was pulled up 13 cents higher on average for the day to the mid-$6.60s but it traded in about a 50-cent range. The rest of the market was whipped around, posting a volatile mix of between 10 and 45-cent gains and 20-cent to nearly 70-cent trading ranges.
Some of the biggest ranges and price increases were in the Southwest, most notably on El Paso Natural Gas in the Permian Basin. El Paso declared an unauthorized overpull penalty situation on its system because the Washington Ranch storage facility is on maximum withdrawal and shippers are taking more gas off the pipeline, to make sales or meet demand, than they are putting into the system. Shippers were told to review supply/demand balances to ensure sufficient gas is being delivered into the pipeline. In addition to soaring prices, low temperatures were forecast in the 20s throughout much of the Midcontinent and West Texas.
In the Midwest, Chicago finally pulled back ahead of the Henry Hub on forecasts of a return to more normal 30 degree highs and slightly below normal lows over the next couple days. Chicago posted a wider than 50-cent trading range and managed to increase more than 35 cents.
“We did finally manage to get a positive basis spread. But the Nymex did its own show and the rest of the world is just following along taking care of business,” said a Chicago marketer. “Directionally we’re tied to the Nymex. There’s not much we can do about that.” He said he expected Chicago prices to continue to get stronger relative to the hub because of expected colder weather. Chicago prices averaged in the upper $6.70s and Dawn around $6.90.
The Northeast added about a quarter on average compared to Tuesday’s price averages but basis widened only slightly. Despite the price increases in the Northeast, there were times when the market area prices were not covering variable costs, one LDC source said.
“I sold all I had at $7.32 at Iroquois Zone 2, but then I saw M3, Algonquin, Tennessee Zone 6 all shot up to like $7.80. I was like ‘wow;’ I probably should have waited a little longer. Let that be a lesson, I guess.”
Most of the Gulf points made gains between 30 and 40 cents, while the Midcontinent rose about 30 cents on average. The West was widely mixed with California points showing the smallest advances in the high teens to around $6 at the Southern California Border and $6.17 at PG&E Citygate. Opal moved up about a dime and the Pacific Northwest gained about a quarter.
“There’s no clear reason for all this,” said a Gulf Coast marketer. “It all has to be based on technicals and short covering rather than on fundamentals. We have so much gas in storage. The long-term weather forecast calls for normal temperatures. Oil wasn’t up that dramatically. We are all fully protected from this. It’s a show right now and few people are enjoying it.”
Thursday’s EIA storage estimate could have another big impact on the market. Early forecasts show a wide range of withdrawal expectations between 70 and 130 Bcf with most predicting something between 90 and 110 Bcf. The five year average is 73 Bcf and last year the industry withdrew 162 Bcf. Last week’s withdrawal was 59 Bcf.
The National Oceanic and Atmospheric Administration said there were 168 heating degree days last week, which was 24 more (colder) than the prior week and five more than normal. It was 29 HDDs fewer than the same week in 2002, however.
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