Physical prices for the long weekend and Monday tumbled in Thursday trading as buyers were reluctant to make purchases ahead of anticipated reduced industrial load. Midwest points showed relative strength, but Northeast locations recorded healthy drops as weather conditions were expected to remain at seasonal levels.
The Energy Information Administration (EIA) released figures showing an increase in storage gas more than what was expected and futures prices promptly dropped. The increase of 42 Bcf was about 10 Bcf above the market consensus. At the close of futures trading Thursday May had settled 5.2 cents lower at $2.089 and June had dropped 6.6 cents to $2.201. May crude oil gained $1.84 to $013.31/bbl.
Cash buyers will typically make their transactions prior to the 10:30 a.m. EDT release of storage data by the EIA and not subject themselves to unnecessary market volatility, but that can work both ways. “We didn’t buy any gas for the long weekend on Consumers since we are not in any rush, but we had to buy before the storage report came out,” lamented a Great Lakes marketer. “Monday might be the better buying opportunity.”
The marketer admitted that the warm weather in March was a challenge, “but we came out all right,” he said.
Next-day quotes at Great Lakes points held their ground relatively well in contrast to the weakness of other points. Deliveries to Chicago Citygate, Consumers and Michcon were all off between a couple of pennies and 6 cents. Farther west on Alliance next-day prices were a little more than a nickel lower.
The biggest declines were reserved for northeastern points with declines ranging in the neighborhood of a half dollar. Algonquin Citygate plunged by more than 50 cents; Iroquois Waddington shed about 35 cents, and Tennessee Zone 6 200 L lost 40 cents.
Prices at Marcellus market points fell Thursday as Cabot Oil and Gas Corp. said that natural gas production from the Lathrop Compressor Station had returned to pre-disruption levels. The Station had been damaged by a March 29 fire (see Daily GPI, March 30).
Cabot CEO Dan O. Dinges estimated that the flash fire at the station, which is operated by Williams Partners LP, “deferred only about 1 Bcf of natural gas production, in total, clearly a minor impact to the year.” Thursday prices for delivery over the long weekend at Tennessee Zone 4 200 L tumbled a little more than a dime, while Texas Eastern M-3 dropped just short of a dime.
Forecaster AccuWeather.com predicted near-normal temperatures for Boston throughout the extended holiday period. Highs were expected to range from 51 to 55 degrees; the normal high this time of year is 51.
Meanwhile, a California source noted that some deals on Transwestern into Needles were for gas to flow Friday through Sunday instead of through Monday due to a planned outage. SoCal Gas reported on its website pipeline maintenance at the Transwestern Needles market point from April 9 to May 4. They will be pressure testing supply lines from the Transwestern metering station to the North Needles Compressor Station. A total capacity reduction of 800 MMcf is planned.
Gas to flow for the four day period at the Southern California Border averaged $2.25, down a dime.
Futures market observers see the stage set for further declines. “This market continues to await some evidence of a significant slowing in production capable of reversing this year’s dynamic of an expansion in the supply overhang. But thus far, such evidence remains elusive,” said Jim Ritterbusch of Ritterbusch and Associates.
“[Thursday’s] downside move should not have come as a surprise given the continued deteriorating balances, weak cash trade and exceptionally wide carrying charge structure. Although Monday’s lows managed to hold by a small 1.5-cent margin, we will look for these lows to be violated as early as Monday with nearby futures testing the $2 mark by mid week,” he said.
Prior to the release of the storage data, expectations were for a more modest addition. Ritterbusch and Associates predicted an increase of 28 Bcf, and a Reuters survey of 25 traders and analysts resulted in a sample mean of 34 Bcf with a range of plus 10-45 Bcf. Industry consultant Bentek Energy had calculated a build of 33 Bcf. Nonetheless, the storage surplus increased as last year 29 Bcf was withdrawn, and the five-year average is for a build of 8 Bcf.
Bentek correctly cautioned that “most of the risk is to the high side this week. Larger injections could be reported in the East and Producing regions, although the withdrawals in the East by NGPL and TCO support the smaller build estimated in this region.”
A poll of 26 industry players by First Enercast Financial revealed a full 65% of participants do not believe full storage capacity, now estimated at 4.5 Tcf, will be reached this fall. Pressure and storage locations were cited as the main factors.
“We were hearing a number from 34 to 36 Bcf,” said a New York floor trader. At 42 Bcf “the number was bearish and prices quickly dropped, but it always seems to come right back.”
Tim Evans of Citi Futures Perspective thought the report showed the underlying supply-demand balance to be weaker than expected, but he admitted that “it’s also difficult to model demand at this time of year, when degree day accumulations for heating or cooling are relatively small and the geographic pattern can have an influence.”
Inventories now stand at 2,479 Bcf and are 887 Bcf higher than last year at this time and 934 Bcf above the five-year average. In the East Region 11 Bcf was injected, and in the West Region 5 Bcf was injected. Stocks in the Producing Region rose by 26 Bcf.
Continuing its breakout of types of storage for the Producing Region, the EIA reported that working gas stocks in the Producing Region, for the week ending March 30, totaled 1,045 Bcf, with 260 Bcf in salt cavern facilities and 786 Bcf in nonsalt cavern facilities. Working gas stocks increased 11 Bcf in the salt cavern facilities and increased 16 Bcf in the nonsalt cavern facilities for the week. A historical series of the salt and nonsalt subtotals of the Producing Region, dating back to January 7, 2011, is available for download at: wngsr_producing_region_salt.xls.
A growing storage surplus may be in the cards for next week’s report as well. The National Weather Service (NWS) forecasts well below-normal heating requirements for populous sections of the country. For the week ended April 7, NWS predicts New England will see 135 heating degree days (HDD) or 29 below normal, and the Mid Atlantic states of New York, New Jersey and Pennsylvania are expected to endure just 126 HDD, or 17 below normal. The Midwest from Ohio to Wisconsin should anticipate 84 HDD, or a whopping 63 below its normal seasonal tally.
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