Having lost prior-day screen support Monday and being on the verge of losing some cooling load in the Great Lakes market area Wednesday, prices fell across the board Tuesday. The fact that an expected warming trend in the Northeast is slow in developing also contributed to a bearish cash market mood.
The degree of price depression was widely varied, as losses ranged from less than a nickel to slightly over 55 cents. However, a majority of them were pretty sizeable in being around 20 cents or greater.
The natural gas screen continued to decline by small amounts, dropping 3.5 cents Tuesday. Unlike the disconnect on Monday, it was joined by oil futures weakness Tuesday. After setting another record overnight in hitting $64.27/bbl, September crude pulled back 87 cents to $63.07.
Despite the new weakness in cash, sources looked at it more as consolidation of recently overextended prices than a substantive setback. They looked for modest upticks over the next couple of days prior to weekend softening.
“Yes, I think there’s enough weather load left to rally cash Wednesday. It’s still hot in a lot of places,” said a marketer who sells gas on behalf of several Gulf Coast independent producers.
A Calgary-based producer said much the same thing, saying he looked for slightly firmer prices Wednesday and Thursday before milder weather trends take prices lower for the weekend. However, in a slightly contradictory note, he said cash numbers were going lower in late trading Tuesday due to Nymex softness. He observed that Chicago citygates had widened their discount to Henry Hub to more than 15 cents Tuesday.
A Northeast utility buyer said he company was “ideally situated for playing Gulf of Mexico gas against Canadian supplies,” but when it came to price levels, both of them have been out of the money recently. “Any time you see $9 gas, we’ll hold off for a while on filling storage,” he said. He expressed hope that maybe Monday represented the peaks in both cash gas prices and crude oil futures, and that maybe the market was starting to calm down.
Although Tropical Depression Irene still looks like no threat to Gulf of Mexico production, its more westerly tracking could have an effect on the gas market anyway. If it reaches the Mid-Atlantic coast, the heavy rains it brings could depress power generation load in that area.
Enercast’s Agbeli Ameko predicted a storage injection of 56 Bcf to be announced for the week ending Aug. 5. He said he expects a slightly lower than average injection “as strong production and pipeline receipts helped offset high heat across the major demand regions across the U.S.” But slight relief from the intense heat this week should help push injections near the 60 Bcf level in next week’s report, Ameko added.
Analyst Kyle Cooper of Citigroup made a final estimation of a 31-41 Bcf build in the upcoming report. “A build in our range would be considered somewhat bullish on a temperature-adjusted basis while clearly bullish on an absolute basis,” Cooper said. However, he noted, “Mother Nature will not remain a bull forever.”
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