Futures jumped Thursday following the release of government inventory data, but the surge occurred after most cash trading had taken place, leaving the illusion of divergent markets.
Cash prices averaged about a 6-cent decline in early physical exchanges, but the 10:30 a.m. EST Energy Information Administration (EIA) storage report showed a 127 Bcf withdrawal and was larger than most traders’ expectations. At the close of futures trading March had vaulted 14.2 cents to $2.567 and April had added 9.7 cents. March crude oil gained 51 cents to $102.31/bbl.
“Rockies gas trades real early and when you get a move like [Thursday] after storage on the screen it can look like it was down, but it was just finished trading. Nymex was at $2.43 while we were trading this morning, so to say Rockies was off 10 cents, yes, but Nymex ran after Rockies traded,” said a Denver cash trader.
“Opal was lower on the day, but I would look for it to print $2.55, maybe even $2.60 Friday. February has been real steady pretty close to Nymex. It’s averaged 2 cents over Nymex for the month. It’s been pretty dull for a February, which is normally a high-load time with prices going crazy, but this has been one of the quietest Februarys I can remember. It’s been warm in Colorado, hence the $2.50 gas.”
Opal was quoted a dime lower, but deliveries to the Cheyenne Hub as well as gas into Northwest Wyoming dropped by a few pennies less.
Rockies market dynamics have shifted since the Ruby Pipeline opened last summer. Traders are trying to move gas into Malin and ultimately the PG&E citygate market if they can do it. “Getting that gas from CIG into Ruby has had to deal with full pipelines and it gets constrained every day. That’s a play that a lot of people are working on,” the trader said.
Midcontinent points weakened as well. NGPL Midcontinent Pool, Panhandle, and OGT all softened about 10 cents.
Eastern traders noted that “there’s not a ton of demand out there and everyone on Thursday tries to get things done before that 9:30 [a.m. CST] number comes out. No one wants to get caught long or short.”
“The spread on Tetco M-3 to Nymex hasn’t changed all that much. Transco [spread to Nymex] was up just a little bit [Thursday], about a penny and a half, but actual pricing was down seven to seven and a half cents. I show the Hub as $2.47, so we have been going off that. Tennessee was down a penny and Algonquin was off by two cents,” the Houston-based trader said.
Effective hedging is enhanced with steady basis differentials. To implement a complete hedge taking into account price risk and location or basis risk an end-user, for example, would buy futures and buy the basis as well. A steady basis makes that portion of the hedge that much easier, traders point out.
Physical prices at eastern points weakened. Tetco M-3 fell over a nickel as did deliveries into Leidy. Transco Zone 6 non-NY was quoted just shy of a dime lower.
Futures traders noted that once the storage number was released, prices for the most part held their ground. “We rallied right after the number came out, and we have been sitting here at $2.55 ever since,” said a New York floor trader.
“Traders think there might have been another production cut and are trying to see if it is for real. That may have spooked some of the shorts. I don’t know if the market can sustain a rally, maybe trade up to $2.65, but I think next week the market is going to fall out of bed. I look for a test of the $2.25 to $2.35 area.
Inventories now stand at 2,761 Bcf and are 817 Bcf higher than last year at this time and also 765 Bcf above the five-year average of 1,996 Bcf. In the East Region 83 Bcf was withdrawn and in the West Region 7 Bcf was pulled. Stocks in the Producing Region fell 37 Bcf.
Estimates of the report were tightly bunched and most of the estimates were on the low side. IAF Advisors of Houston was expecting a pull of 121 Bcf, and a Reuters survey of 24 market pundits showed an average 120 Bcf with a range of 109-133 Bcf. Bentek Energy calculated a 119 Bcf draw.
Bentek correctly cautioned, however, that the 119 Bcf figure has “most of the risk to the high side, or a larger draw again this week. The largest risk is in the Producing Region, where storage withdrawals from depleted fields increased by 78% week-on-week. Storage activity from depleted fields has traditionally correlated highly with the overall regional activity,” the firm said.
Market technicians suggest that the March contract could trade as much as 12 cents lower and still keep the case for steady, if not higher, prices intact. “Peg $2.306 as the lowest level consistent with any bull market correction. As long as natgas can remain above this level, we will have a case for further upside,” said Brian LaRose, analyst with United-ICAP. “Sink below $2.306, and the downtrend should be expected to continue.” LaRose suggests working protective sell stops.
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