Prices at a few scattered locations were flat to slightly lower Tuesday, but most of the cash market recorded gains ranging from a little less than a nickel to a quarter; most were in double digits. The gains were attributed largely to continued demand for storage injections with the traditional injection season still less than two weeks old.
Award an assist for Tuesday’s overall firmness to 13.9-cent increase in near-month gas futures prices on Monday. However, at least one source was dubious whether the May natural gas contract’s tacking on another 2.6-cent advance Tuesday would help sustain further cash strength, pointing out that heating load has dwindled to almost nothing.
NGPL-Louisiana’s rise of about 40 cents was considered a market anomaly because of the thinness of quotes reported for that point.
Cold weather is close to disappearing outside sparsely populated mountain areas of the West, which would have little impact on heating load. The rest of the U.S. is unlikely to experience any daily highs below the 50s in the next day or two, and mild springtime weather in the South means the region has not developed any significant air conditioning demand so far. Even Eastern Canada is expected to see highs in the 60s Wednesday.
Despite Northeast increases, a Gulf Coast producer who trades regional citygates said he didn’t really consider prices all that strong Tuesday. Much of what his company is selling is to customers refilling their storage accounts, he said, and until storage starts getting close to full, the cash market “will be well bid.” With little weather-related load at this point, “that’s [storage injections] pretty much what’s propping up this market right now.
He called current basis spreads from the Gulf Coast to the Northeast “fair to middling,” saying they were much stronger earlier in the month.
The producer said another factor keeping cash prices supported is the fact that in the last couple of months or so his company has seen several industrial end-users such as fertilizer makers start buying gas again after quitting it for a while when prices were so high. Also, some power generators who had switched to fuel oil when natural gas prices were near their peak are being driven back to gas by highly expensive crude oil.
Storage buying “and not much else” is holding up prices for now, said a Houston-based marketer in concurring with the producer. He added that even when storage facilities start topping off around mid to late summer, “I don’t think there will be any big price crash, but you never know.” The motive for buying gas now to put into storage is pretty obvious, the marketer said. There’s still something like a $3 spread between prompt-month futures and Nymex’s winter strip, and storage holding charges from now until then are going to cost a lot less than $3, he said.
Other than the storage-related demand, it’s a pretty quiet market, the marketer said.
The National Weather Service’s (NWS) outlook for the April 17-21 workweek looks very much like its previous two weekly forecasts in calling for an above normal eastern two-thirds of the U.S. and a below normal West Coast. NWS predicts above normal temperatures almost everywhere east of a line running north-northeast from western New Mexico through central Colorado, the western edge of Nebraska and the western Dakotas (the excepted areas where normal conditions are expected are the southern tip of Florida and New England along with New Jersey and a sliver of New York along its eastern border). The agency forecasts below normal readings everywhere west of a line running northward from the Mexican border through Southern California before curving to the northeast through central Nevada and northern Utah before taking a northerly direction again along the western edge of Wyoming into western Montana.
Analyst Ron Denhardt of Strategic Energy & Economic Research in Winchester, MA said he projects an injection of 23 Bcf to be reported for the week ending April 7. “Strong prices for the 2006-2007 heating season and high oil prices are providing a strong incentive to keep gas in storage,” he said.
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