With hot weather-driven power generation load remaining high and news surfacing of a low-pressure area in the northwestern Caribbean Sea that could develop into a storm threatening Gulf of Mexico production, prices ranged from flat to about 15 cents higher at nearly all points Wednesday.
The conspicuous backsliders in Wednesday’s cash market were Waha and the Permian Basin. El Paso-Permian and Waha fell a little more than a dime each and Transwestern-Permian plunged about a quarter after having been among the rare western points to resist overall softening the day before. A marketer said he understood that with the California market remaining weak as PG&E extended a high-linepack OFO through at least Thursday, a number of San Juan Basin producers had elected to send their gas eastward to seek higher prices in the intrastate Texas and Midcontinent markets, thus creating extra competition for the Permian Basin and Waha supplies.
Although the PG&E citygate was flat, most other western points in California, the Rockies/San Juan/Pacific Northwest and Western Canada were rallying by small amounts from Tuesday’s general weakness. Questar was an exception with a drop of about a nickel.
The Atlantic hurricane season was quiet in its first week since officially beginning June 1, but a low-pressure system in the western Caribbean Sea caught the attention of gas traders Wednesday. The National Hurricane Center (NHC) in Miami said it appeared Wednesday afternoon that a tropical depression was forming between Honduras and the Cayman Islands and possibly could become Tropical Storm Arlene in the next day or two as it trudges northward.
Sure enough, an inspection later that afternoon by an Air Force Reserve Hurricane Hunter plane established that Tropical Depression One was a reality. At 5 p.m. EDT the poorly defined center of the depression was about 325 miles south of the western tip of Cuba.
If TD One stays on a northerly course, it would skirt the eastern limits of offshore production and cause relatively little disruption. But any veer toward the northwest would take it into the heart of Gulf production, which would be a considerably more bullish development for gas prices. Indeed, a 5 p.m. EDT projection by the NHC did indicate that TD One would begin a gradual turn to the northwest sometime Thursday afternoon or evening and would be approaching the southeastern corner of Louisiana and the Mississippi coast around 2 p.m. Saturday.
A couple of sources reported hearing that the latter course was the more likely. Prior to the low-pressure area’s designation as a tropical depression, a Houston-based marketer said his company’s weather consultant indicated that there was a good chance of it hitting the central Gulf Coast. Such an event would be three to four days away, he said, so any related price movement would be for the weekend. The marketer didn’t expect any major production impact, but said offshore producers likely would evacuate their platforms, which would push prices higher.
A Gulf Coast producer was getting similar reports, saying he was hearing that the system was believed likely to head north up the Mississippi River, which would affect offshore supplies from the Mobile Bay area westward across much of the Louisiana coast.
“We have a little heat wave going” in the Northeast, said the producer, who trades that region. It should help keep cash prices strong until maybe the middle of next week, when what’s left of potential Tropical Storm Arlene should be reaching the Northeast and cooling it off, he added. The region is expected to be “pretty hot this Sunday” with a high in the mid 90s, he said.
Gulf Coast-Northeast basis spreads have widened to 70-80 cents since late last week, the producer noted, so most transportation to the market area is a money-making proposition, although Texas Eastern can still be a bit iffy.
Hot, muggy weather will remain the name of the game throughout most of the South, Northeast and Midwest through Thursday at least. Only coastal areas and northern sections of the West are currently enjoying fairly moderate to cool conditions.
The screen looked for a while Wednesday morning like it might lend some extra support to Thursday’s cash prices when it was up substantially in sympathy with oil-related futures. However, even the Department of Energy’s report of an unexpected drop of 3 million barrels in crude oil inventories last week failed to avert an eventual sell-off in both the natural gas and oil contracts, leaving the gas screen down 12.7 cents and the July crude contract off more than a dollar.
The Chicago area has gotten quite hot and thus there was a lot of buying on the power generation side, a marketer said. He noted that a big spread last week between Chicago and Henry Hub, when the citygate lagged by as much as about 15 cents, had tightened greatly this week. In fact, Chicago topped the Hub by a couple of pennies or so Wednesday.
The National Weather Service’s forecast for the June 13-17 workweek calls for above normal temperatures in the Midwest and much of the Northeast and South, along with most of Texas and eastern New Mexico. The above normal area excludes New England and coastal sections of the East Coast and Gulf Coast states, except for South Texas. Below normal readings are expected in peninsular Florida, the Pacific Northwest and a thin coastal strip of New England.
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