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Midwest Gains Pace Weather-Driven Advance; Futures Rise
Physical natural gas prices at most points across the country rose about a dime Tuesday, but if the highly volatile Northeast is added to the mix, the overall change is a loss of about 3 cents.
Particularly strong were the Midwest and the Great Plains as high winds and cold were expected to dominate the area for the remainder of the week. At the close of trading March futures had risen 11.9 cents to $3.272 and April had added 11.3 cents to $3.331. March crude oil rose 80 cents to $96.66/bbl.
“Weather forecasters are talking six to 12 inches of snow here [Nebraska] and also a nice little cold spell,” a utility buyer said. “It’s supposed to get down to the single digits tonight [Tuesday] and also Friday. We’ll have a good cold week.
“We’ve got 20 mph winds going, and we’ll sell over 200,000 Dth today and probably that amount for the rest of the week and maybe 250,000 Dth on Friday. If this continues, we’ll make our February budgeted volumes or above.”
The buyer said that going into the long weekend Northern Natural gas had said his company could take all the gas it wanted to out of storage, but “Sunday they sent out a notice invoking their Carleton restrictions, so we had to go out and pick up more gas. They will probably be allocating gas all week. We paid $3.50 for our gas today on Demarcation.”
Quotes in the area for gas delivered Wednesday were tightly bunched. At Northern Natural Gas, Ventura gas was seen at $3.50, 25 cents higher than Friday, and at Demarcation next-day deliveries came in at $3.51, 23 cents higher. Gas at the Chicago Citygates rose about 19 cents to $3.50 as well, and deliveries on Alliance added 19 cents to $3.50.
Tom Skilling of the Chicago Weather Center said temperatures Tuesday evening would reach only 8. “[It will be] sharply colder. Northwest winds gust over 30 mph. Wind chill readings hover around zero much of the day. Periods of cloudiness produce brief flurries. Skies clear toward evening as winds slowly diminish. Overnight temperatures range from 5 in the outlying suburbs to 12 downtown.”
Next-day prices in the Northeast were mixed as temperatures were forecast to slide below seasonal norms and power prices eased. AccuWeather.com forecast that Boston’s high of 45 Tuesday would fall to 37 Wednesday, 2 degrees below its seasonal norm. IntercontinentalExchange (ICE) reported that power for Wednesday delivery into the New England Power Pool’s Massachusetts Hub fell $3.51 to $111.44/MWh.
At the Algonquin Citygates gas for delivery Wednesday fell two pennies to $14.84, but gas at Iroquois Waddington skidded $1.59 to $4.91. On Tennessee Zone 6 200 L next-day deliveries added 37 cents to $14.34.
Both power and gas prices in the Mid-Atlantic mostly firmed as temperatures were also expected to work lower from Tuesday’s highs. AccuWeather.com said the high Tuesday in New York City of 46 would ease to 35 on Wednesday, 7 degrees off its seasonal pace. ICE reported that power for delivery Wednesday to the PJM West Hub rose $7.47 to $43.96/MWh.
On Tetco M-3 gas for delivery Wednesday rose 12 cents to $3.92, and gas on Dominion added 8 cents to $3.32. Gas bound for New York City on Transco Zone 6 fell 61 cents to $14.02.
Futures traders are having to adjust to the forecasts for cooler weather. “Shorts went home Friday all fat and happy, but the recent forecasts have them in something of a panic,” said a New York floor trader. “I’m thinking $3.35 on the top end of the range, but we’ll see if the weather stays with us. Some guys [shorts] are just holding on for right now, but if it gets above $3.35, I think that will cause some covering, and prices could run higher.”
Analysts continue to see a market dominated by weather forecasts but at the same time suggest prices may hold in the near term. “Gas prices appear to be stabilizing after falling to a one-month low late last week due to the more than ample supplies of gas and record production levels,” said Addison Armstrong of Tradition Energy in a morning report to clients.
Longer term, forecast models over the extended weekend suggest cooling into March. Commodity Weather Group in its morning 11- to 15-day forecast shows a broad ridge of below and much below normal temperatures extending from western Pennsylvania to Utah. “Over the holiday weekend, the models generally converged on a few themes that dominate the next two weeks,” said Matt Rogers, president of the firm.
“They agree to keep a blocking feature in place from the Hudson Bay over to the Greenland area. Nearly all versions also show warmer potential toward the East Coast in the six-10 day range, although the block to the north limits the upside intensity of the warming with cold air wedge risks at times ahead of storms. And finally, and this was the biggest change from Friday, they show narrow warm ridging along the North American west coast for the 11-15 day (by day 11 on this morning’s Euro ensembles). That new feature prevents the warmer Pacific from dominating the pattern and instead allows colder, deeper troughing for the Midwest, East and South for at least the first week of March.”
Mike DeVooght of DEVO Capital looks for the market to continue trading in a broad range. “Fundamentally, not much has changed in the gas market. We do feel the highest probability is for the gas market to continue to trade in the $3-4 range over the next few months,” he said in a weekend note to clients.
From a risk management perspective, DeVooght says he “look[s] for rallies above $3.60 to resell this market.” At present, he advises trading accounts and end-users to stand aside the market. Those with exposure to lower prices he suggests to sell summer months should they reach $3.75 to $3.95 for a “light position.”
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