The cash market continued lower in Friday trading for weekend through Monday delivery as market participants noted continuing mild weather and the movement of gas out of storage into the market. Particular weakness was noted in the desert Southwest, southern California, Rockies and Northeast points.
Futures managed a gain heading into the weekend as traders covered short positions. At the close of futures trading April had climbed 5.2 cents to $2.324 and May had added 5.3 cents to $2.425. April crude oil gained 82 cents to $107.40/bbl.
“We’ve decided you can put a fork into the winter,” said a Midwest utility buyer. “We’ve got to find a home for our stored gas, and that is not fun when you are looking at dumping it on the market at $2.15. I’m looking for bets as to when it is going to hit $2. Northern Natural Gas at Ventura was cheaper than Demarcation.”
The buyer attributed the day’s decline to a combination of a lack of any kind of supportive weather and storage gas being offered. “I think everyone is just doing the same thing. It would be nice if we could be injecting this gas into storage, and I did hear that Tennessee was relaxing some of their regulations,” he said.
Quotes nationally were about 7 cents lower, and Midwest prices fell right at the norm. Gas into Chicago Citygate fell just a few cents, and Northern Natural Demarc was seen more than nickel lower. Northern Natural Gas at Ventura dropped just shy of a dime.
Prices posted double-digit losses at desert Southwest and southern California points as a cooling trend was forecast over the weekend that would take temperatures below seasonal norms. SoCal citygate traded more than 15 cents lower, and El Paso Mainline South shed just more than a dime. SoCal Border was quoted a little less than a dime lower.
The National Weather Service in Los Angeles said, “High pressure and weak offshore winds [would] make today [Friday] a warm and sunny day. On Saturday…the high pressure will weaken…allowing for some cooler temperatures. For Sunday through the balance of [this] week…low pressure will establish along the West Coast…pushing some weak frontal systems across the area.” It added that the fronts were expected to increase the probability of light rainfall, but “all areas will experience below-normal temperatures and cloudy conditions.”
Forecaster Wunderground.com predicted that the high in Los Angeles Friday of 83 would progressively cool to 63 by Monday.
Eastern points also were weaker. Algonquin Citygate fell nearly just north of a dime and gas on Tennessee Zone 6 200 L dropped nearly a dime. Gas deliveries to Transco Zone 6 NY and Tetco M-3 shed nearly a dime and just north of a nickel, respectively.
End-users on Florida Gas Transmission Zone 3 were reported to be using storage gas to help cope with upstream outages of compressor facilities. “The difference between Zone 1 and Zone 3 is about 10 cents, and we are pulling from storage as well as other customers,” said a Florida utility buyer.
Futures traders were not impressed with the day’s gains. “You’ve still got no weather in sight, and it looks like the next level is the $2.18 to $2.20 range early next week, and we will see where we go from there. I think we’ll come in lower on Monday and then test down to that $2.18 level,” said a New York floor trader.
Bears will be able to head into the weekend knowing that weather conditions are likely to stay in their favor if not improve. WSI Corp. of Andover, MA, in its 11- to 15-day outlook predicts well-above-normal temperatures east of the Continental Divide. “Above-, much-above, and even super-above-normal temperatures are forecast over the eastern two-thirds of the country. Anomalies more than 15 degrees above normal are expected to encompass portions of the north-central U.S,” the forecaster said in its morning report.
It added that risks to the forecast include “temperatures trend[ing] warmer over most of the central and eastern U.S. than currently forecast. Though they continue to display technical differences, the medium-range models all advertise the 11-15 day period will be another very warm period over the continental U.S.”
Although April futures peeled off three cents in Thursday’s trading, technical analysts were encouraged by Thursday’s and Friday’s price action. “Critical support at $2.264-2.229 held; bullish divergence is visible on the intraday and daily RSI [relative strength indicator] readings, and the daily candlestick can best be described as a hammer bottom,” observed Brian LaRose, technical analyst with United-ICAP.
LaRose doesn’t see much room for error, though. “[These are] three very good reasons for a defensive stance. In terms of risk-reward, we like building length here. However, we also strongly recommend working protective sell stops below $2.230,” he said in a morning note to clients.
Others aren’t buying the significance of Friday’s early strength. “[W]e are viewing the bounce in absolute terms as a minor correction. While the show of price support could be signaling some additional attempts toward voluntary production cuts, we have seen no significant reports in this regard,” said Jim Ritterbusch of Ritterbusch and Associates. “Some significant output curtailments will likely be required in order to allay mounting concerns over a sharp downdraft in physical pricing as this month proceeds.”
The rig count dropped across the board, and the gas-directed rig count slid by 21 to 670, its lowest since July 2009, oil field services firm Baker Hughes reported. A break below 665 would put the count at a near 10-year low, back to May 2002 when there were 640 gas rigs operating. Total U.S. rigs operating fell by 16 to 1,973 but was well above last year’s 1,715, and horizontal rigs fell by six to 1,164, still greater than the 981 in operation a year earlier.
The Labor Department’s February Employment Report showed that non-farm payrolls increased by 227,000, well ahead of expectations that were closer to 200,000 but not quite on a par with February’s 243,000 gain. The unemployment rate held steady at 8.3%.
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