Most of the market was close to flat Wednesday, with variations from unchanged usually limited to a nickel up or down. However, a few points in the West rose by anywhere from a little under a dime to nearly 15 cents, while some Northeast citygates fell by as much as about 15 cents.
More than one source was surprised at the ability of prices to continue holding up in the face of weak weather fundamentals in most areas, especially following the screen’s 16-cent drop the day before. However, with Nymex’s natural gas contract continuing another dime-plus lower Wednesday despite a tremendous rebound in crude oil futures, they saw it as a foregone conclusion that most if not all points will be softer Thursday.
Expectations of a storage report centering around an 80 Bcf injection should help insure falling prices, one trader said.
Everybody seems to be discounting any chance of Hurricane Frances getting to the Gulf of Mexico supply area, so there’s virtually “no storm hype in this market at all,” a Gulf Coast marketer said. “I’m hearing maybe a 5% chance now [of production disruption], and that’s down from 30% earlier in the week.” He added that he certainly wouldn’t bet against those odds.
Continuing the speculation on the storm’s potential threat to gas supplies, however, one source said people should remember how 12 years ago Hurricane Andrew was able to cause so much devastation while crossing the Florida peninsula and then go on to pound Louisiana. But whether Frances ever reaches the supply area or not, it will cause some demand destruction by bringing cooling rains and creating power outages in Florida and other parts of the Southeast, he added.
Frances remained a Category Four hurricane while lashing the Turks and Caicos islands Wednesday afternoon on its way to the southeastern Bahamas, the National Hurricane Center reported. A hurricane watch likely would be issued for parts of Florida’s east coast Wednesday night, the agency said. At 5 p.m. AST the storm’s eye was about 35 miles north of Grand Turk Island and about 650 miles east-southeast of the Florida coast. It was moving toward the west-northwest at nearly 15 mph, with a gradual turn to the northwest and a drop in forward speed expected during the following 24 hours.
Florida Gas Transmission cautioned shippers to be ready to make possibly radical changes in supply nominations, noting that demand usually increases significantly prior to a hurricane’s arrival and then drops by a great amount (see Transportation Notes).
A western trader exemplified the general weakness of the market in reporting that TXU, the giant electric utility for North Texas, was buying only minimal gas Wednesday, which means that power generation demand in the Lone Star state remains unusually subdued for late summer. Another sign was that expected highs in Houston through Sunday are only in the range of 90-92 degrees.
However, temperatures of 100 degrees or more were spreading in the Southwest, which helps explain why western points saw most of Wednesday’s small upticks. That was the only region still approximating normal summer heat, though.
With the Northeast seeing most of the larger drops Wednesday, basis from the Gulf Coast got a little tighter, noted a marketer. He said there was compressor issue on Iroquois that had suspended IT deliveries of Canadian gas at Waddington. That created a little shortfall of supply in the Northeast; otherwise, Wednesday’s price drops might have been bigger. (Iroquois Zone 2 saw the region’s smallest drop of about 3 cents). The marketer added that “prices will get really ugly in the Northeast for this weekend; there’s no weather demand whatsoever.”
“I can’t see anything at all bullish” on the near-term market horizon, commented a Gulf Coast source. However, he admitted to be “a little” bullish about the winter market. Nobody’s expecting a really tough winter, he said, “but then again nobody wants to get caught short” if they’re wrong.
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