Cash prices on Friday rose throughout the country except for in the Northeast following Thursday’s strength in futures, but the March contract eased as the market couldn’t shake the stranglehold of moderate weather and plump storage.
Most physical natural gas prices added about a dime or a little more on Friday, but futures had a hard time dodging the ever-present big bullets of high production and storage levels that continue to decline ever so slowly. At the close of futures trading March had eased 5.5 cents to $2.499 and April had dropped 3.8 cents to $2.677. March crude oil rose $1.48 to $97.84/bbl.
Once again, northeastern cash points moved counter from the rest of the market. Drops of a dime to nearly 20 cents were commonplace.
A Rockies marketer said the strength in the cash market can often be attributed to the performance of the futures market the day prior, but he was noticing that basis differentials were tightening as a major storm pounded the Front Range.
“Balance of the month [balmo] Rockies gas typically trades about 10 to 15 cents under Nymex, but Friday’s balmo was trading very close to Nymex. Rockies balmo was $2.47 at $2.50 earlier, and that was when the screen was at $2.50. That’s not normal, and we have definitely seen a tightening of the basis.
“The weather along the Front Range will definitely impact the basis,” he said. He also pointed out that recent trading in natural gas cash and futures was showing tremendous percentage swings at these levels. “We are seeing these 15- and 20-cent moves, and that equates to an 8% to 10% move, which is pretty dramatic. That’s like a $10 move in crude oil both ways, but nobody talks about it,” the marketer said.
Rockies gas firmed. Deliveries to CIG were quoted nearly 20 cents higher, and Opal and Kern River added a dime and close to eight cents, respectively.
Forecaster AccuWeather.com reported “a raging snowstorm is expanding eastward from the Denver foothills to part of the central Plains [Friday]. The storm has already delivered between two and four feet of snow to some of the foothills west of Denver. Over part of the eastern Plains of Colorado, drifts of up to five feet have been reported this afternoon,” said Alex Sosnowski, senior meteorologist.
Coal-to-gas switching has been cited as a strong force underlying the gas market and a reason to believe prices may not have much lower to move. A Societe Generale analysis points to an “exceptionally high level of excess gas burn for power generation” as a direct result of the continuing low gas prices and availability of gas delivery capacity for the nation’s power generation sector. Analyst Laurent Key cited gas prices below $2.80 as allowing competition against Illinois Basin-fed coal-fired power plants for the first time since 2009 (see related story).
Coal-to-gas switching is complex and not just every utility is ready to jump ship. When queried about the likelihood of his Wisconsin utility switching, an operations manager responded “not really. For the three [coal] units we have bought into, we have a long-term view that they will be viable. We have no place to go but to keep running them if they are not so old that they need to be phased out.
“Two of them have been upgraded because they are new, and our older one is going to get some work starting this year. The rest of our portfolio is spread out between nuclear, wind, a little hydro, a combined cycle gas plant and a quick-start peaker. Coal is about 65-70% of our generation.”
The manager noted that the biggest issue for his company currently was the historically high low-temperature readings for December and January. “It does knock our load down a bit. With the proliferation of gas it has knocked the stuffing out of the daily power market, but that has hurt us because we are long generation and short load. Your coal units aren’t running enough to make up that difference,” he said.
Offsetting the general firmness of the overall market were marked declines at New England points. Algonquin citygates dropped more than 19 cents and Dracut was quoted nearly 16 cents lower. Deliveries to Iroquois Waddington shed nearly 16 cents as well.
Texas points rose. Gains of about a dime were reported at Katy, Waha and NGPL S. TX.
In spite of supportive rig count data, analysts see the futures market ready to work lower. “Today’s [Friday] gradual price recovery off of the early lows appeared more related to pre-weekend positioning than to any particular headlines,” said Jim Ritterbusch of Ritterbusch and Associates. “However, another sizable drop in the gas rig count may have offered some psychological support. Gas rigs fell another 32 this week to lowest levels in two years. The gas rigs are now more than 18% below a year ago and are at levels that should begin to force some reductions in this year’s production estimates. However, voluntary production curtailments were generally lacking this week, a development that precluded the market from sustaining price rallies.”
Bears are still in control, according to Ritterbusch. “The market has also been looking for assistance from the weather factor but here also, supportive developments have not been forthcoming. One-two week temperature views have taken on a more neutral appearance, but some broad-based below-normal expectations will be required at this advanced stage of the heating cycle to prompt much of an upside price reaction. All in all, we still see a market poised to re-test 10-year lows that were established last month,” he said in post-market comments to clients.
Tom Saal, vice president at INTL Hencorp Futures in Miami and a student of Market Profile, hit the day’s trading on the head when he forecast that March futures would test Thursday’s value area at $2.544-2.428. March traded as low as $2.45. Perhaps of greater importance is the Market Profile structure formed on Wednesday. March traded as low as $2.355 and according to Saal, the “non-trend day” is a “potential bottom pattern.”
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