Physical natural gas slipped about two cents nationwide Wednesday as weather forecasts continued to show moderation, and analysts were expecting the earliest start to the injection season since 2007. On average, eastern points were off about a penny and on the West Coast next-day deliveries shed two cents to a nickel. Bucking that trend was both the Henry Hub cash and futures markets. March physical deliveries at the Hub were up 2 cents to $2.21 and April natural gas futures added 2.5 cents to $2.360 at the close. May crude oil rose $1.20 to $107.27/bbl.

Eastern traders noted weakness in April forward products. “[TransCo] Z-6 is trading about 20 cents [over the Henry Hub], [Tetco] M-3 is about 16 cents and Algonquin has gotten crushed dropping 3 to 4 cents today,” a broker said. “That’s usually the trend right before bidweek; more deferred contracts will follow the cash.”

Thursday’s Energy Information Administration storage report is expected to see the earliest injection since 2007. A Bloomberg survey showed an expected 9 Bcf increase and a Reuters poll resulted in a 10 Bcf average. “I wouldn’t be surprised to see injections a lot greater going forward this year compared to previous years given all the heat we have had,” the broker said.

The broker surmised that if much above normal temperatures were forecast several weeks ahead, then AC load may eventually come into play and increase demand. “I’m kind of wondering if that’s the reason we don’t see much movement in the strips or the back terms, but we see a change in prompt month contracts. People may want to leave that alone. If you get into May or June and it has already been warm for two months they don’t want to be short and buy it back.”

Quotes on Algonquin Citygate gas fell close to 3 cents but deliveries to Iroquois Waddington shed 8 cents. Prompt gas on Tennessee Zone 6 200 L dropped 3 cents as well.

Other eastern points were steady to lower as well. Tetco M-3 fell two cents and TransCo Z-6 was off a penny.

California traders noted near parity between SoCal Citygate and PG&E Citygate, a rare occurrence. “That difference can get to 15-20 cents, a Southern California trader said. “SoCal Citygate is unusually strong,” and he guessed that the outage of San Onofre nuclear reactors No. 2 and No. 3 as well as Palo Verde No.3 being out may have something to do with it (see related story).

An above normal number of nuclear plants operating below capacity continues to provide a firm footing to a market otherwise starved for demand. According to the NGI NRC Power Reactor Status Report, a record amount of nuclear capacity is off line. At this time last year 16,757 MW was offline and in 2010 15,888 MW was down, but the report showed 20,905 MW was unavailable because of nuclear reactors either being down or not operating at full capacity. The highest amount for this date is 17,128 MW, and the 20,905 MW was from a total of 31 facilities out of total U.S. capacity of 100,900 MW generated from 104 facilities.

PG&E Citygate and SoCal Citygate both traded at $2.59, down 4 and 2 cents respectively. SoCal Border shed about 2 cents as well.

One of the few positive points was the Henry Hub, which gained two cents but other Gulf points slipped.

The market will be bracing for the first storage report of the year expected to show an injection. With nearly two months left on the traditional winter heating season, the scramble for injection space is likely off to an early start. Last year at this time 20 Bcf was withdrawn and the five-year pace stands at a 17 Bcf pull. Others have joined the chorus calling for builds along with Bloomberg and Reuters. Industry consultant Bentek Energy forecasts an increase of 5 Bcf and IAF Advisors in Houston expects a 10 Bcf build.

In the eyes of some, the fundamentals still point lower. “The natural gas market [Tuesday] has retreated from Monday’s gains despite temperature forecasts that look a touch less bearish than Monday’s runs,” said Tim Evans of Citi Futures Perspective in New York.

“Overall, though, the weakness is consistent with the outlook for warmer-than-normal temperatures, weak heating demand and likely storage builds in the next few weeks that will pad what was already an 807 Bcf year-on-five-year average surplus as of March 9. As long as the surplus continues to expand, we see a risk of a further downside price test, with trade at or below the $2.00 level still a possibility in our view.”

Warmer-than-normal temperatures in the Midwest may signal an early summer. When do warmer temperatures improve the demand for natural gas?

Readings of 80 degrees or higher seem to be a consensus temperature at which air conditioning load begins to surface. According to The Weather Channel the high in Chicago Wednesday is expected to reach 84 and Thursday is forecast to be 79. Injections seem to be in the cards for the next few weeks, but at some point above-normal temperatures could be expected to tilt the supply-demand balance the other way. For the next couple of weeks the pattern of much-above-normal temperatures is expected to stay in place for the nation’s mid section.

“Looking at forecast confidence from a geographic perspective reveals a much higher level of confidence for the middle third of the nation versus at the coasts,” said Matt Rogers, president of Commodity Weather Group. “The various models are vacillating on East and West Coast forecast details, but they continue to show a very persistent, dominant much-above-normal temperature pattern in the six- to 15-day [forecast] for the central third of the continent. One difference [Wednesday] morning may be more of a split flow into the West in the 11- to 15-day that could warm the Pacific Northwest a bit more, while still keeping California and the Southwest cool and unsettled. Some of that Southwest energy could again propel into Texas, offering some cooler chances on daytime highs and more rain opportunities.”

©Copyright 2012Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.