Cash natural gas prices overall retreated on average about 3 cents, but if the high-flying Northeast delivery points are subtracted from the calculations, the decline comes out closer to a nickel. California and the Midwest were noted soft spots. At the close of futures trading November had fallen 4.9 cents to $3.437 and December was down 0.7 cent to $3.767. November crude oil added 24 cents to $92.09/bbl.
Californians were caught in a short-term heat wave, but cash prices saw little response. “Just this week it has been crazy. We are seeing very hot weather that started Sunday,” said a Los Angeles-based analyst. “It should blow through for about three days and it looks like the Santa Ana winds.”
He added that a price response wasn’t quite as simple as it might seem. “With the screen coming down, that will create some adjustment. The back months are coming off, and because of that you can’t continue to trade as high. We’re not going to trade 50 cents above November’s prices and balance-of-the-month [SoCal] Border traded down to $3.50 from $3.67 Monday.”
Prices at western points were lower by about a nickel or more. At Malin quotes for Wednesday delivery fell 7 cents to $3.36, and at PG&E Citygates gas fell 7 cents to $3.99. At SoCal Citygates Wednesday gas dropped 5 cents to $3.76, and at the SoCal Border points Wednesday deliveries fell 8 cents to $3.61. Gas on El Paso S Mainline eased 2 cents to $3.67.
Next-day gas delivered into the Northeast soared as pipeline restrictions came into play. Algonquin Gas Transmission (AGT) said it was restrict[ing] interruptible and a portion of secondary out of path receipts sourced at the Tennessee Gas Pipeline interconnect at Mendon. “No increases in receipts sourced from Mendon will be accepted.” AGT said.
Wednesday deliveries to the Algonquin Citygates surged 48 cents to $4.44, and deliveries to Iroquois Waddington jumped 31 cents to $4.27. Gas into Tennessee Zone 6 200 L added a stout 40 cents to $4.46.
Midwest points also sagged. Alliance shed 6 cents to average $3.37, and deliveries to the Chicago Citygates plunged 10 cents to $3.38. Gas on Michcon eased 3 cents to $3.46, and deliveries to Consumers were 5 cents lower at $3.45.
Futures traders have found that it is often better to stand aside if they know that high-frequency traders will be entering orders. This will often come into play on Thursday’s release of inventory data at 10:30 a.m. EDT by the Energy Information Administration when actual inventory data can vary from market expectations and seemingly create trading opportunities. John Woods, president of J.J.Woods and Associates, defers to the computers. “I just let the computers get in the ring and bang each other around,” he told NGI on Tuesday.
Woods said other times to keep an eye out for high-speed trading may be when noon (EDT) weather updates are released. “You get a little leery if you know a big weather report is coming out. Today forecasters ran a 15-day simulation, and you pay attention to that, but this is a shoulder month and you don’t typically see a huge swing. They showed cold air working down to the Southeast, but basically it’s going to be nice in the Northeast.”
As far as near-term market direction Woods said, “we stopped where we needed to stop [$3.40]. The weather model kicked out a forecast that said it was going to be mild, and that was already factored into the market.”
Natural gas futures will often stage a pre-season rally from August-September into November, and the question is whether the current advance will continue. However, traders correctly noted a head and shoulders technical chart pattern, a classic reversal indicator, and Walter Zimmermann, vice president of United ICAP, observed that “in late August when natgas rallied from the neckline of our head and shoulders bottom, we targeted $3.600 minimum. And we emphasized our longstanding seasonal advice to avoid the short side of natgas between Labor Day and Thanksgiving.
“As the move unfolded, we added $3.950 to our list of targets. As usual, there was a long list of reasons why natgas would not rally from September this time around. As usual, those reasons proved faulty. We do not know if natgas will rally into Thanksgiving. We do know that we like taking some profits on length up here. And we like protecting the rest of the length with sell stops. Our most bullish case is still seen as the $4.190 level,” he said in a weekly note to clients.
Tom Saal, vice president of INTL Hencorp in Miami, sees a couple of near-term price objectives. In his work with Market Profile, he expects the November contract to test Monday’s value area between $3.499 and 3.467. He adds that “eventually” value areas at $3.593 to 3.571 and $3.290 to 3.254 are likely to be tested.
Much of Monday’s price slide was predicated on weather outlooks calling for warmer temperatures. Those are still in play, although forecasters admit the variability in the models gives them less confidence in their predictions.
“The models continue to vary more significantly from run-to-run, which keeps general forecast confidence to the low side,” said Matt Rogers, president of Commodity Weather Group. “After shifting quite a bit cooler [Monday] afternoon in the 12z cycles, the various models returned to the warmer direction overnight. The European ensembles are perhaps the least changed from what we favored in [Monday] morning’s update, so we continue to favor that story for the six-15 [day period].
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