Prices were mixed Tuesday but mostly tilted toward the higher side as a modicum of prior-day screen support combined with continuing shortfalls in Gulf Coast supply to push a majority of points up.
Variations were wide-ranging, as most of the gains were in double digits but ran as high as about $1.40 and as low as about a nickel. On the other side of the price coin, a few flat points were interspersed among losses that ranged from about a nickel to more than $2.60. In general, the West was solidly firmer while the patches of softness were all in the East.
The wide disparities among eastern price changes reflected the continuing dearth of liquidity at many points, particularly in the Gulf Coast.
Henry Hub was missing in action for the second straight day as Hub operator Sabine Pipe Line extended a force majeure for its entire system into a sixth day (see related story). Power outages caused by Hurricane Rita were the pipeline’s chief problem.
Prospects for price movement Wednesday constituted a tough call, according to one source. The screen added another 21.6 cents to Monday’s advance (once again going from initially negative to positive in later trading), and production outages in the Gulf of Mexico will keep supply tight for the foreseeable future, he said. However, weather-related demand will be sorely lacking as autumn-like temperatures continue to assert themselves more and more, he added.
Indeed, cold fronts due in the Midwest and Northeast Wednesday night and Thursday will erase any remaining air conditioning load in those regions, and even most of the South will be cooling off Thursday as the fronts push in that direction, The Weather Channel said. The West will be a mixed bag with hot weather in the desert Southwest and inland California contrasting with mild to chilly conditions elsewhere, it said.
Minerals Management Service (MMS) announced a small increase in Gulf of Mexico gas shut-ins (see related story). Based on reports from 75 companies, MMS said 7,856.65 MMcf/d was offline Tuesday, up about 13.6 MMcf/d from the day before. Cumulative deferred production since Aug. 26 (when Hurricane Katrina was approaching) totaled 172.506 Bcf, or 4.726% of the Gulf’s normal yearly output of about 3.65 Tcf, MMS said.
The market “seems quiet in our area [Midwest] compared to the Gulf Coast,” commented a marketer. Prices continue to be much stronger than he thinks is warranted. “People are buying mostly for storage in Chicago” because the area has almost no weather demand at all. Assuming no dramatic collapse at Nymex Wednesday, he anticipates a record-high futures settlement.
Peter Bryant, president of TBC ConFuels in Houston, also had Nymex on his mind. He thought some futures traders tried to run up prices on options expiration day Tuesday. Apparently “they don’t think there’s going to be any gas supply” following back-to-back hurricanes, he said. He expected to make all of his October sales at index, saying there was no worry about where the indexes turn out because prices are so high to begin with. The gas market seems “tired and exhausted after so many massive up and down days” at Nymex, Bryant continued. Traders seem to have acquired a herd mentality lately, sort of like those stuck in the mammoth traffic jams while evacuating the Houston area last week, he said.
A Gulf Coast marketer reported finding “plenty of October market” for her onshore producer clients, saying it was undoubtedly because buyers were being denied access to a lot of offshore supplies they previously could have counted on. She said the producers were anxiously waiting for the Mont Belvieu natural gas liquids storage facility in southeast Texas to get floodwaters pumped out and resume operations. It can’t do that right now because of widespread power outages in the area, she said. In a side note, she commented that all the processing losses that Rita added to those already caused by Hurricane Katrina “are really hurting this industry.”
In its forecast for the Oct. 3-7 workweek, the National Weather Service expects above normal temperatures for most of the U.S.; specifically, everywhere (except for normal conditions in the southern half of the Florida peninsula) east of a line running from central Montana along the eastern Idaho border before curving southwestward through northwest Utah to include southern Nevada and extreme southeast California. The agency looks for below normal temperatures in Washington, Oregon and the western half of California.
Up until recently such a forecast would have indicated heavy power generation load, but in early October it’s more likely to mean comfortable weather with little gas demand from electric generators.
Here is a sample of analysts’ predictions of the storage injection to be reported Thursday for the week ending Sept. 23: Stephen Smith & Associates, 72 Bcf; Kyle Cooper of Citigroup, mid 60s Bcf (initial estimation); and Agbeli Ameko of Enercast, 49 Bcf. Ameko added, “The seasonal implications arising from shut-in production ahead of the winter heating season are significant. This lost supply along with cooler seasonal temperatures could put the gas market in a crisis situation…Models are updating now to account for Rita’s impact. Early output shows extremely tight supply by late March, putting the market below levels experienced in 2001.”
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