The physical market was mostly quiet Friday and posted gains of about 2 cents, but that’s only if no one counted the meteoric gains caused by weather at numerous points from the Mid-Atlantic to New England. Futures were tame by comparison and the March contract was only able to carve out a 7-cent range. At the close March was unchanged from Thursday at $2.477, which is only 2.2 cents lower than the contract’s close the previous week.
Significant cold and snow accumulations were expected to envelope much of Northeast over the weekend and into next week. AccuWeather.com meteorologist Alex Sosnowski said the high in Boston Friday of 50 would drop to 26 on Sunday before recovering to 35 on Monday. The normal high this time of year is 38. In New York City Friday’s high of 47 was anticipated to fall to 34 on Sunday before rising to 41 on Monday. The normal high in New York this time of year is 41.
Leading the charge higher were quotes on Transco Zone 6-NY, which was up more than $2.60, followed by gains on Algonquin of a little more than a 1.50. Iroquois Waddington came in at a gain of more than $1.20 and Tetco M-3 was seen just above 70 cents higher.
Conditions in the West were far different as temperatures were expected to stay moderate. “Loads are off and that has kept prices nearly flat at PG&E Citygate,” said a California marketer. He noted light trading volumes and said that indicated a well supplied market. “There are also no spreads going.”
SoCal Border was quoted lower by a couple of pennies, PG&E Citygate appeared to rise by a cent and Malin was unchanged.
Futures traders see the drums beginning to beat for a possible rally. “My March chart shows this to be the first two weeks of the [price] brakes being on from prior to last summer. Since then prices have been straight down,” said a Washington, DC, broker. “We have been watching the open interest number and that has been rising by leaps and bounds, and when that number gets extreme you want to go the other way. The open interest has been rising and the shorts have been piling on so at some point you could get a short covering rally.”
The broker conceded that there was a big carry in the market (the difference between succeeding contract months) and buyers are saying “why do I want to buy anything in the future when the fronts are so cheap?” The broker cited $2.80 as near term resistance and $2.20 as near term technical support.
With an ever-growing storage surplus pretty much discounted by the market, traders are likely to be wondering what kind of spring and summer might lay ahead. From a fundamental perspective the large reduction in rig counts and albeit token production cuts may have the greatest potential to impact prices. A long, hot summer wouldn’t hurt either.
Tim Evans of Citi Futures Perspective in New York said, “The natural gas market absorbed a bearish storage report on Thursday, but ended higher as the market continues to anticipate some future tightening of the supply demand balance based on both a declining US rig count and producer cutback announcements that were back in the spotlight on Thursday when a Chesapeake Energy executive was misquoted, which created an impression that additional cuts were on the way.
“When the smoke cleared, however, it turns out the producer had only reiterated its Jan. 23 plan to reduce output by 0.5 Bcf/d, with the possibility of doubling the cut to the 1.0 Bcf/d level if the market were to remain weak. However, whatever production cuts have been promised or implemented so far, they have yet to translate into supportive storage data.”
Others see any production cuts as putting in a market bottom rather than prompting a rally. “In about any market, an output response to low cost pricing can prove capable of forcing a price floor but is seldom able to induce a sustainable price rally,” said Jim Ritterbusch of Ritterbusch and Associates.
In his view “the production cuts that will likely see additional announced reductions as this month proceeds are likely to force nearby natural gas futures into an extended period of price consolidation rather than into a sustainable price uptrend. These assumptions suggest a re-test of last month’s 10 year lows and a possible spike type brief violation that could be followed by a re-entry into a long term base building process.”
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