Overall cash prices added about a nickel on average Wednesday as strength at eastern and other points was able to offset weakness in the Northeast and a steady Midcontinent market. Meanwhile, December futures recorded a 12-month spot contract high on the day at $3.827 before closing out the regular session at $3.760, up 2.1 cents from Tuesday’s finish. January was 2.2 cents higher at $3.879. December crude oil rose 94 cents to $86.32/bbl.
New England markets eased as the dynamic of ever-falling temperatures was removed from the market. Expected temperatures were hovering right around seasonal norms. AccuWeather.com forecast that Boston’s Wednesday high of 46 degrees was expected to hold steady Thursday before rising to 48 on Friday. The normal high in Boston this time of year is 52. New Haven, CT’s Wednesday maximum of 50 was anticipated to ease to 48 on Thursday and rise to 53 on Friday. The normal high in New Haven is 55.
The National Weather Service in southeast Massachusetts predicted that “lower level moisture will be tough to erode with [a] decent inversion in place… so prospects for clearing are low. [It is a ] Different story across interior where the airmass is much drier and plenty of sunshine is expected outside of southeast New England. Forecast highs are close to …40s to around 50. Cloudiness over southeast New England is expected to erode Thursday night as ridging builds into region…as skies remain clear elsewhere. Colder nights ahead with lows in the 20s and 30s.
Next-day quotes at Algonquin Citygate dropped 34 cents to $7.37 and deliveries into Iroquois Waddington slipped 21 cents to $5.86. Gas on Tennessee Zone 6 200 L slumped 68 cents to $7.14.
At eastern points next-day gas inched higher. Packages at Tetco M-3 climbed 3 cents to $4.02 and on Dominion gas rose 4 cents to $3.82. Deliveries into New York City on Transco Zone 6 gained a cent to $3.94.
Producers in the Midcontinent saw mixed pricing. “Almost every day it’s a situation of no-load,” said a producer. “We have 60-degree weather, no load, no demand, and our storage is busting at the seams. The last storm didn’t free up any space on the pipe.”
The producer saw a market disconnect with “people don’t realize there is so much gas, and the market doesn’t want to believe that.”
Midcontinent price differentials are indicative of the ample supplies. NGPL Midcontinent Pool is trading about 17 cents higher than neighboring Oklahoma Gas Transmission and “That shouldn’t be the case. I’ve got gas that can go into either pipe so we try to move it on NGPL. That’s a no-brainer.”
Quotes on NGPL Midcontinent Pool added a couple of pennies to $3.66 and deliveries on ANR SW were 2 cents higher at $3.57. Gas on Oklahoma Gas Transmission was down a cent at $3.49 and Thursday gas on Panhandle Eastern was 2 cents higher at $3.56. NGPL Amarillo was down one cent at $3.70.
Lots of the industry’s eyes were on the screen Wednesday as the December contract reached highs not seen in a little more than a year. The last time a front-month contract traded higher than Wednesday’s $3.827 was during the week ending Nov. 4, 2011, when December 2011 futures reached $3.978.
Futures traders are not big converts to the current exuberance. “I’m not a big believer in the market bullishness. I have seen reports that talk about the problem with low prices is that if you have to meet a budget, you have to produce gas. If prices drop by half, you have to produce twice as much gas to enable your spending,” said a Washington, DC, broker.
“It’s all well and good to cut production to raise prices if you are in an economics classroom, but not so good if you are trying to run a company with a huge debt load. All these ‘Econ 303’ professors haven’t run a business.”
Traders noted Tuesday that sentiment had changed regarding the week’s inventory with a switch from a build to a draw. “They originally said a build of 3 or 4 Bcf and now they are saying a draw of about 8 Bcf, so that might be a little push on the market. We are getting into that season now,” said a New York floor trader.
A survey conducted by Energy Metro Desk last Friday of the storage report revealed an average 9 Bcf draw from a sample of 10 analysts.
Observers don’t see recent gains worthy of the facts. “With almost 4,000 Bcf in the ground, an 11 Bcf spread just doesn’t warrant this level of action. The impact of this range of this anticipated storage supply (11 Bcf) is less than three tenths of 1% of what is currently in the ground,” said a Midwest end user. “Hell, if we see a drawdown of 100 or 200 Bcf sometime this winter — does that correlate to a $5 or $10 price movement?”
If estimates are correct, Thursday’s inventory report from the Energy Information Administration is likely to show storage hovering near 4,000 Bcf. A Reuters poll of 26 traders and analysts showed an average 14 Bcf pull with a range of a draw of 32 Bcf to a build of 9 Bcf. United ICAP predicted a pull of 31 Bcf and industry consultant Bentek Energy is looking for a withdrawal of 29 Bcf.
Last year, 20 Bcf was injected and the five-year average stands at a 17 Bcf increase.
Market technicians see a positive tone to the market but calculate several near-term objectives that have to be met in order to re-establish the upward trend. “Another constructive day for the bulls. However, key resistance has yet to be breached,” said Brian LaRose of United ICAP following Tuesday’s close. “[We] see only one way to confirm another leg up is still ahead, get back above $3.850 and 3.970. Clear these two levels, and natgas has room up to $4.320-4.380-4.399-4.418, our head and shoulders target [December contract]. Fail to clear resistance, and a larger degree decline is likely to unfold from the October highs.”
Forecasters are calling for warmth in more extended outlooks. WSI Corp. of Andover, MA, in its Wednesday morning 11- to 15-day forecast shows above- and much above-normal temperatures west of the Mississippi River. The eastern portion of the country is forecast to be normal. “[Wednesday’s] forecast is warmer than yesterday’s outlook across Texas. A few portions of the north-central and western U.S. are also a little milder, but there are no other notable changes.”
Risks to the forecast include temperatures running cooler in the Southeast than currently forecast “while warmer in the Southwest as most models indicate the transition to a more negative NAO [North Atlantic Oscillation] phase. The Pacific Northwest could also run somewhat warmer than forecast depending on the degree of western U.S. ridging that develops.”
WSI expressed average confidence in the forecast as there was generally good large-scale model agreement.
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