The cash market scored an average gain of 8 cents in Tuesday’s trading. Gains were widespread and only a handful of thinly traded points fell into the loss column.
Gulf Coast locations along with the Permian Basin and California were strong, but Midwest and Midcontinent pipelines were relatively weak. Futures have been struggling of late to make a convincing case for $4 gas, but that hasn’t prevented traders on both sides of the market from loading up. CME Globex reported that open interest has reached a record for the 11th straight day at over 1.4 million contracts. At the close of futures trading, May had fallen 4.6 cents to $3.969 and June was down 4.2 cents to $4.019. May crude oil added 12 cents to $97.19/bbl.
Great Lakes buyers didn’t buy a thing Tuesday as expectations of warmer weather down the road had them waiting it out. “We saw $4.40 Monday, and we’re thinking that when the warmer weather starts kicking in, we have some time to wait on our purchasing,” said a Michigan marketer.
“We have some customers who have gas flowing on their behalf at a lower cost, but we don’t want to push it up any further. By the 14th we are seeing more seasonable temperatures in the 50s, and by the 24th I see a 63, but we will have to start buying before then.”
Temperatures in the Midwest were predicted to scoot above seasonal norms later in the week. AccuWeather.com predicted Chicago’s high of 43 Tuesday would rise to 46 on Wednesday and reach 56 on Thursday. The normal high this time of year in the Windy City is 53. Detroit’s Tuesday high of 42 was forecast to inch up to 44 Wednesday before rising to 57 Thursday. The seasonal high in Detroit is also 53. In Milwaukee, Tuesday’s high reading of 40 was expected to hold 40 on Wednesday before advancing to 53 on Thursday. The seasonal high in Milwaukee is 48.
Quotes on Alliance fell a penny to $4.27 for Wednesday gas, and at the Chicago Citygates, next-day gas was seen at $4.31, up 3 cents. On Consumers Wednesday packages were down a penny at $4.34, and on Michcon gas was quoted unchanged at $4.26. At Dawn, gas for Wednesday delivery was down a cent at $4.36.
Little change in next-day temperatures was seen at eastern points, but next-day power prices rose at some points, helping to spark a modest rise in next-day gas prices. IntercontinentalExchange reported that next-day power at the New York Independent System Operator’s Zone A (western New York) market point rose $3.19 to $41.57/MWh and at Zone G (eastern New York) next-day peak power added $7.68 to $60.87/MWh.
At the New England Power Pool’s Massachusetts Hub, next-day peak power was quoted at $63.64/MWh, down 73 cents, and at PJM West power for Wednesday added 7 cents to $43.50/MWh.
Next-day gas destined for the Algonquin Citygates gained 34 cents to $7.47, and at Iroquois Waddington Wednesday parcels were seen at $6.18, 8 cents higher. Gas on Tennessee Zone 6 200 L rose 26 cents to $7.33.
On Dominion, deliveries Wednesday added 11 cents to $4.19, and on Tetco M-3 next-day packages gained 5 cents to $4.38. Gas bound for New York City on Transco Zone 6 gained 21 cents to $7.05.
Other market centers were firm as well. Henry Hub gas was quoted 10 cents higher at $4.07, and on El Paso Permian next-day deliveries came in at $3.94, also 11 cents higher. At Opal, gas was seen at $3.87, 7 cents higher, and at the SoCal Citygates Wednesday gas was $4.18, 5 cents higher.
Near-term weather forecasts turned cooler overnight, leading to a firm futures open. WSI Corp. in its six- to 10-day outlook said, “Today’s [Tuesday’s] forecast is colder across much of the central U.S., including the Deep South as the latest model guidance is a bit more aggressive on the magnitude of anomalous cold air associated with a digging trough across the heart of the nation.”
Analysts see the market currently supported by expectations of upcoming hefty storage draws and nuclear outages. “Although gas prices dipped momentarily below $4.00 yesterday [Monday] amidst light profit-taking, the market pushed back above that level by day’s end as traders eyed the possibility of two more storage withdrawals and the nearly 25% of nuclear power plants that are off-line for maintenance,” said Addison Armstrong of Tradition Energy in a morning note to clients. Armstrong sees little weather-driven market support after the current cold spell. “Weather forecasts, after the next five days of below- to well below-average temperatures across the East, are likely to provide growing resistance to gas market rallies in the coming weeks.”
Taking a longer-term perspective, Jim Ritterbusch of Ritterbusch and Associates contends that the $3 to $4 advance in futures “has discounted most of the loss of supply surplus but one last dose of discounting may be required before a price top is achieved. The physical market has also advanced during the past six months as the surplus has been gradually erased. This cash strength has supported nearby futures in relation to back months. The more distant contracts continue to provide a fulcrum role since they are much less sensitive to temperature trends and because they are forced to factor in a possible mild summer and a shift back toward coal usage and away from natural gas consumption as differentials continue to expand.”
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