Cash traders on Wednesday watched most delivery point averages across the country slip by a few pennies to nearly 40 cents, but afternoon news of a pipeline-impacting explosion in the Gulf of Mexico could rattle some cages on Thursday.

Following Tuesday’s lackluster futures session, cash traders were left up to their own devices on Wednesday. The nation’s delivery points have been moving in unison all week, recording mostly declines Monday, increases on Tuesday and now declines again on Wednesday.

The big news on Wednesday afternoon was a Tennessee Gas Pipeline Co. force majeure. Due to an “unexpected incident” caused by third-party pipeline replacement, Tennessee declared a force majeure effective immediately for meters located in the South Marsh Island 249 area on its natural gas pipeline system offshore Louisiana. The pipe was reportedly flowing 23,000 Dth at the time of the closure. While the explosion was not on Tennessee, a portion of the system was shut in for evaluation (see related story).

“A lot of people are talking about the explosion in the Gulf of Mexico,” said Rocco Canonica, an analyst with Bentek Energy. “While it is related to the Tennessee force majeure, it is not affecting that much gas. The force majeure is obviously of note, but I don’t think the explosion will have any big impact on the market.”

Canonica noted that like everyone else, his eyes have been affixed to the record-setting crude futures prices and the impressive run-up in natural gas futures prices as well. On Wednesday April natural gas put in a high of $10.040 before settling at $10.011, up 1.1 cents from Tuesday. April crude set a new record high at $110.20/bbl before finishing out the day at a record settle of $109.92/bbl, up $1.17 from Tuesday.

The futures markets have been “going crazy” and the explanation for this activity is not clearly defined, Canonica said. “According to our numbers, natural gas demand over the last two days has fallen 14 Bcf/d nationwide. However, because futures are riding high, cash points on Tuesday for Wednesday flow went up. It really doesn’t make a whole lot of sense, demand is dropping but the futures market is currently driving things.”

Others looked for price direction clues at the Henry Hub, which dropped 16 cents Wednesday to average $9.69. “After being pretty strong over the last few days, the Henry Hub is quite a bit under the screen now, which I think tells you a little bit about $10 futures,” a New York trader noted. “That said, the cash market falls in line to a certain degree with futures because the hedge funds don’t only trade futures. They also trade financial swaps and basis swaps as well, so there is probably some fund influence in the cash market…mostly at the Henry Hub.”

Canonica did note that gas storage levels leaving the traditional withdrawal season at the end of March will likely be well below where many had previously expected. “Based on weather expectations, we think storage is going to be 150 Bcf below the five-year average for March,” he said. “The last week of March looks like it could be the coldest week of the month, so that could lead to a 100 Bcf draw that week. If we get three good weeks of additional withdrawals, that will definitely shake up the end of withdrawal season storage levels. Now, one would have to think that scenario has already been factored into these $10 gas prices.”

Turning attention to Thursday morning’s storage withdrawal for the week ended March 7, most industry estimates are looking for a withdrawal in the neighborhood of 75 to 90 Bcf. The number revealed by the Energy Information Administration Thursday will be compared to last year’s date-adjusted 104 Bcf draw and a five-year average pull of 80 Bcf.

First Enercast Financial is predicting a withdrawal of 80 Bcf, which would bring total storage to around 1,404 Bcf. The firm noted that weather for the week was mixed, but population-weighted heating demand worked out to around average for the period.

“Total storage remains in a comfortable range to finish off the heating season,” First Enercast Financial said in a note. “A bullish string of draws since early February has pulled the total storage surplus to only 63 Bcf above the five-year average. Regardless, stocks remain a nonconcern as we historically only pull an additional 100 Bcf from storage over the next three weeks. This would place storage at roughly 1,304 Bcf by the end of March.”

Following its analysis, the firm said it believes that current storage fundamentals appear to be somewhat disconnected in recent natural gas price gains. “Other factors appear to be driving the bullish environment driving commodity prices,” First Enercast Financial said. “The declining dollar, weakening equities markets and overall strength in crude prices have put today’s natural gas prices substantially above our fundamental fair value price model. As we near the completion of the heating demand season some of this value may come out of the natural gas market as fundamental market conditions have not changed dramatically this year.”

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