Prices were in modest rally mode at a large majority of points Wednesday as heat levels began to trend upward again in key northern market areas and what had previously appeared to be a benign tropical wave south of Cuba was designated as Tropical Storm Don in the afternoon as it headed into the Gulf of Mexico.
Other than a 20-cent spike at Texas Eastern-East Texas, most of the rest of the market was only mildly firmer in ranging from flat in many cases to about a nickel higher. Losses from 2-3 cents to a little more than a nickel were similarly minor and occurred mostly at western points.
Following Tuesday’s downturn of 1.6 cents, August futures spent their expiration day Wednesday wavering on either side of flat before finally going off the board unchanged at $4.37 (see related story). That was barely higher than the July settlement of $4.357.
What had been considered on Tuesday as a mere storm system that could eventually bring much-desired rain to South Texas was emerging Wednesday as a serious potential threat to Gulf of Mexico production. After raising development odds for a tropical wave south of Cuba to 30% Tuesday afternoon, the National Hurricane Center (NHC) had bumped them up considerably to 80% by Wednesday morning, and it further raised the ante to near 100% that afternoon. Sure enough, the agency announced the formation of Tropical Storm Don in the late afternoon north of Cancun, Mexico as it moved to the west-northwest at nearly 12 mph.
Don’s projected tracking had it moving through the western Gulf of Mexico toward an eventual landfall around late Friday along the lower Texas coast.
Peak temperatures in the 90s remained a constant in Thursday’s forecast for the South, with some lower 100s due at the western end in Oklahoma and Texas. The Midwest and Northeast aren’t expected to get as hot as they did last week, but south of New England highs around 90 are returning. No surprise in the West: very warm to hot from the Rockies through much of the desert Southwest and inland California, but mild to cool elsewhere in the region.
The CIG-Henry Hub basis spread widened to about 45 cents from 40 cents a day earlier.
Kern River said linepack was returning to normal after being around its minimum target level for several days.
The first few days of August should be scorchers for most of the eastern three-fourths of the U.S., according to the National Weather Service (NWS). It projects above-normal temperatures for Aug. 1-5 blanketing the nation from the eastern portions of Nevada and Southern California along with the Upper Plains through the entire East Coast. NWS looks for the largest deviations above normal to extend from West Texas and eastern New Mexico through the Midcontinent, lower Midwest and most of the South into the Mid-Atlantic — overall an area with high gas-fired power generation load. Southern Oklahoma and western Arkansas are likely to see the highest cooling loads during that period, NWS said.
Most traders appeared to be finishing their bidweek soon after August futures expired Wednesday, a Texas-based marketer said, leaving “not much” left to do Thursday and Friday. He thinks most August indexes will be slightly up from July, although he anticipated a Chicago citygate index around $4.49, which would be about a dime higher than the July level.
The marketer perceived a pretty routine summer bidweek but said it was not surprising that power generators were ordering a lot of supply for August after the recent spells of super-hot weather.
A Midcontinent producer said late Tuesday afternoon he was seeing August baseload into Panhandle Eastern trade around $4.19 that day, with basis deals being done at minus 14.5 cents. Due to power demand on the OG&E system (the Oklahoma City area has seen a long string of daily highs around 100 degrees or more), his company was seeing “very strong double-digit bonuses” being bid and/or offered on Enogex West. He said Oklahoma City was expected to break a heat record Wednesday with temperatures peaking around 105-106.
A Midwest marketer said her company bought August gas at last-day settlement basis of plus 21 cents into Consumers Energy and plus 23 cents into MichCon. Consumers still has a couple of restricted delivery points, she said, but it didn’t concern her company because it doesn’t use those points. Local temperatures were considerably milder than they had been last week, but peaks should be getting up to around 90 going into the weekend.
In keeping with flat futures, bidweek numbers saw little change from Tuesday levels, IntercontinentalExchange (ICE) reported. For example, the Southern California border fell only about a tenth of a cent, staying a little above $4.42 on the ICE system, while NGPL-TexOk was about a penny higher at nearly $4.30.
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