The physical market overall on average fell about 2 cents Wednesday in spite of short-term weather forecasts calling for warm temperatures and much of the Gulf of Mexico production shut-in. Midwest and eastern points were weak but California locations managed modest gains. At the close of futures trading the expired September contract had managed a 2.0 cent gain, reversing a string of four losses to $2.634 and October had gained 5.2 cents to $2.685. October crude oil fell 84 cents to $95.49/bbl.
Next-day prices at Midwest points eased, although forecasters were expecting near-term warmth followed by much needed rainfall. Drenching rain from downgraded Tropical Storm Isaac is forecast by AccuWeather.com to reach some needy drought areas in the Plains and Midwest into the weekend. Portions of Arkansas, Missouri and other central states will soon be on the receiving end of soaking downpours.
“While flooding rainfall in southeastern Louisiana and southern Mississippi will tend to diminish farther inland, some beneficial rain will fall on the parched landscape hundreds, if not a thousand, miles away from the Gulf Coast. The rain is coming far too late for this summer’s crops, such as corn and soybeans,” the forecaster said. But it was also anticipated that barge traffic on the Mississippi River could regain its former levels.
Up until Wednesday, natural gas futures had declined four days in a row, and traders were busy assessing just how much gas to purchase at September index or go with the spot market.
“We went pretty high for August, about 80% and didn’t end up buying much on the spot market,” said a Great Lakes trader. “For September we are looking at about 67%.”
Quotes at the Chicago Citygates shed 3 cents to an average $2.75 and gas delivered to Michcon skidded 4 cents to $2.78. On Consumers next-day gas slid almost a nickel to $2.77 and on Alliance deliveries of Thursday gas fell 3 cents to $2.75.
Next-day quotes at eastern points eased in spite of firm power prices. Quotes at Tetco M-3 were off 2 cents to average $2.83 and on Dominion gas for Thursday delivery shed 3 cents to $2.63. Gas into New York on Transco Z6 dropped 3 cents also to $2.82.
According to IntercontinentalExchange, at the New England Power Pool day ahead locational marginal prices (LMP) for Thursday rose 8 cents to $37.94/MWh and power into the PJM West Hub gained $3.81 to $42.22/MWh.
Quotes on the West Coast were steady to higher as the California Independent System Operator (CAISO) forecast robust power requirements. By mid afternoon Wednesday CAISO reported power loads of 40,960 MW, but Thursday’s peak was anticipated to reach 41,409 MW. Malin was flat at $2.64 and PG&E Citygate was down a penny at $2.89. SoCal Citygate was quoted 3 cents higher at $2.93 and SoCal Border deliveries rose 2 cents to $2.82. Gas on El Paso S Mainline added 4 cents to $3.01.
Futures traders will be taking a close look Thursday at gas storage data that is likely to show a steady to perhaps an expansion of the storage surplus. Last year 60 Bcf was injected and the five-year average stands at 62 Bcf.
Analysts at United-ICAP are forecasting a 68 Bcf injection and a Dow Jones survey showed an average 62 Bcf build. Industry consultant Bentek Energy expects a 64 Bcf increase.
The recent focus on Isaac has lessened attention on weather conditions that for the most part indicate continued warm temperatures, the likelihood of aggressive use of natural gas for power generation and a diminishing storage surplus.
Commodity Weather Group (CWG) in its Wednesday morning six- to 10-day forecast showed above-normal temperatures across central Texas and into southern Oklahoma. “Some moderate to strong heat is still expected over the Midwest, East and South at times for the balance of this week into early next week before a more benign pattern takes hold for the eight- to 15-day,” the forecaster said.
Isaac is expected to have an impact. “Amid the late-summer heat, we expect some cooling impacts from Isaac on mainly highs from the Deep South up into the central/eastern Midwest into the holiday weekend. It leaves behind a humid air mass before the mid-late week cool front. Texas should mostly avoid Isaac, and we continue to forecast low 100s for Dallas next week. Temperatures are not quite as cool as forecast [Tuesday] for the Midwest and East in the 11-15 [day period], but we still favor a seasonal-to-cool pattern that keeps demand lower than normal,” said CWG President Matt Rogers.
The recent futures weakness has analysts looking at still lower objectives. “Aside from reaching our first downside objective, we see very little evidence of bottoming action,” said Brian LaRose, a technical analyst with United ICAP. If the bears “can push natgas below the $2.644-2.591 (a=c) zone, a further decline to the $2.350-2.289 (1.618 a=c) area will be possible.” He adds that even if the market can recover from $2.644-2.591, the trend lower “will have us looking to the ratio retracements of the move down from $3.277 for resistance.”
At 4 p.m. CDT the National Hurricane Center reported that Tropical Storm Isaac was lumbering across southeast Louisiana about 60 miles west of New Orleans causing flooding and downed power lines (see related story). Winds were holding at 70 mph.
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