Despite the fact that a winter chill and storm were still battering much of the Northeast, Midcontinent and Mid-Atlantic, January natural gas futures expired on a negative note Thursday as some market watchers were beginning to question whether the United States might be in for a repeat performance of the overall weather mildness recorded during the 2011-2012 winter.
Much like futures prices, which wilted after a show of strength on Wednesday, natural gas cash prices also retreated nationally, except for in the Northeast, where values soared as localities were blanketed in more than a foot of snow as the mercury continued to dip. January futures went off the board at $3.354, down 3.8 cents, while the February contract closed at $3.412, down 1.3 cents.
With gas demand soaring thanks to the storm, the Algonquin Citygate built on Wednesday’s 97-cent advance by tacking on another $1.95 on Thursday to average $7.70. Similarly, Tennessee Zone 6 200 Line added $2.61 to average $7.53, and Transco Zone 6 New York gained $1.92 to $6.24.
While a few locations outside of the East were also able to tack on a few pennies here and there, the big board nationally showed lots of red, with most points declining by a nickel or less.
In the Midwest, points like Michcon dropped 5 cents to average $3.44, while Chicago Citygate declined by 5 cents to $3.41, and Consumers Energy lightened by 7 cents to $3.45.
One Midwest utility buyer said December’s overall temperature mildness had her firm a feeling bit tentative heading into January.
“We haven’t been doing too much buying because customers are not using enough gas,” she told NGI. “We are doing some shuffling around and may have to sell back some length because December didn’t turn out to be what it started out to be. With the warmer weather…our customers are using less. We’re in the process of balancing everybody out right now.”
She added that there doesn’t appear to be any reason for bulls to get excited. “It looks like going forward prices are going to be lower. January futures went off the board today with a loss. There is a real concern that we could repeat last year’s mild winter. I won’t say it is lining up to be as bad as last winter, but it has that feel about it so far.”
As for January bidweek, the trader said her company is doing some buying but is treating January differently based off of December’s results. “We are going to be more cautious with January bidweek because we want to make sure we are not doing the same shuffling at the end of January. We are doing smaller volumes to protect ourselves. Prices are looking similar to last month. The basis numbers for Consumers are a plus-25 cents, and on Michcon a plus-22 cents, which is very similar to last month. We’ll have to see what the settle comes in at.”
Taking a closer look at the natural gas futures complex upon the January contract’s expiration Thursday, Jim Ritterbusch of Ritterbusch and Associates said futures wasted little time Thursday in washing out most of Wednesday’s gains.
“Much of the see-saw type price action of the past couple of weeks has related to a more varied mix of short-term temperature views than is usually the case,” Ritterbusch said Thursday morning. “While forecasts that we monitor appear slightly supportive on balance, the market would appear to be signaling that a severe and sustained outlook for cold trends will be required to jump start a meaningful price advance.”
However, he said the bearish temperature views that triggered the sharp price decline during the first half of December are no longer available to induce significant downside price follow-through even allowing for a violation of recent price lows.
“So, short of a major shift in most temperature outlooks that extend into the second week of January, we are not currently expecting a sizable price selloff from here, even allowing for some bearish numbers in tomorrow’s EIA [Energy Information Administration] storage release,” he said.
Natural gas traders will be eagerly watching for fresh storage news Friday when EIA reports inventories for the week ending Dec. 21. Ritterbusch is on the record with a projection of a 67 Bcf storage withdrawal, which is “considerably downsized” from last year’s reported 87 Bcf drop for the week, and is less than half of the five-year average decline of 140 Bcf. A Reuters survey of 20 industry analysts and traders produced a 76 Bcf withdrawal expectation.
Ritterbusch said while a further expansion in the supply surplus would appear to provide a major bearish item to this market, he feels that a decrease of around 70-75 Bcf has likely been discounted into the market price.
“Futures markets are always forward looking and can easily shrug off static factors such as current supply levels even when storage releases offer a significant miss off of average street expectations,” he said. “With this in mind, we are leaving open the possibility that this market will be able to ignore a seemingly bearish figure tomorrow with the assistance of year end positioning and despite the rollover into the higher priced February futures contract. The large speculative entities have been re-entering the short side of this market in force during recent weeks and will likely be looking for reasons to book profits prior to year’s end.”
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