Despite a significant heat wave expected to have engulfed most of the U.S. by the end of the weekend, prices fell Friday at nearly all points. The coming jump in cooling load was trumped by the 12.9-cent downturn by September futures a day earlier and the loss of industrial demand in a weekend market. Also, the Northeast was due to stay relatively mild until early this week, and the Midwest would get cooler Saturday before regional temperatures began ascending Sunday.
Overall losses ranged from about a nickel to a little more than 40 cents. Because high heat’s visit to the Northeast will be deferred until early this week, citygates in the region saw most of the largest declines. A few flat to a little more than a nickel higher points kept mixed price movement in play.
A major rally is expected in the cash market Monday not only due to the hot weather but because after spending much of Friday morning in negative territory, prompt-month futures eventually turned upward and ended the day with a 27-cent advance (see related story).
A cold front along with showers and thunderstorms were predicted to keep the Northeast cool to moderately warm through the weekend. But “much warmer air moves into southern sections next Tuesday when high temperatures could reach the middle and upper 90s,” according to The Weather Channel (TWC).
Although the high Plains of South Dakota, Nebraska and Kansas would be heating up Saturday, much of the Midwest was expected to cool off with peak temperatures in the low to mid 80s, TWC said. But a warming trend was due to begin Sunday that would carry such locations as Chicago and Milwaukee to highs in the mid to upper 90s Monday.
There would be no such hesitation about heating up in the South, Midcontinent and interior West. All those regions were already baking Friday with no relief in sight. The central South would see highs slightly over 100 Saturday in the vicinities of Little Rock, AR, and Memphis, TN, as would Oklahoma City, Tulsa and Denver. Naturally the desert Southwest could expect to see seasonal peaks in the low 110s.
Quotes were coming back up in late trading as much as 40 cents or so from their low ends, which usually is a strong indicator of the next trading day’s price direction, a Midcontinent producer said. He was seeing Panhandle Eastern priced at $7.55 early but at $8 in late deals.
The rebound wasn’t because of the screen reversal, the producer said, because that didn’t start until late morning after cash business had been completed. Instead, it seems traders were starting to see signs of supply tightness that they hadn’t perceived earlier, he said. Prices will be “going up big-time” Monday, he added.
Higher prices Monday are a certainty, agreed a Houston-based marketer. He thought the weekend factor played a significant role in Friday’s failure to respond positively to the hot weather forecasts.
The marketer noted that the Chicago forecast called for highs in the lower 80s Saturday, upper 80s Sunday and mid 90s Monday. He said he saw a good chance of a lot of intraday buying Monday; after all, “why should someone buy all the way through the weekend when they won’t need the gas until Monday?”
The Northern Natural Gas bulletin board provided an indicator of how the Upper Midwest would be warming up. Saying the pipe’s normal system-weighted temperature at this time of year is 73 degrees, a posting projected the system averages at 75 Friday, 77 Saturday, 80 Sunday and 83 Monday.
Barclays Capital Research analysts see a bullish western market development in the works. “We expect U.S. Northwest hydro generation to drop sharply from its recent highs in June, with a corresponding increase in gas demand,” they said in summarizing their view Friday. “The demand for natural gas in the U.S. power market has always been whipsawed by power output from nongas-fired plants,” they continued. “It has been particularly so recently. Nuclear and coal plant performance was strong in Q208, helping to keep gas demand in check. But soaring hydroelectric output in the U.S. Northwest in June played an even stronger role in limiting the use of gas in the power sector…
“This strong hydroelectric output allowed gas to be diverted instead to storage. But the bearish flush of water is now likely to reverse. We expect that July hydroelectric generation will show a sharp drop to mirror prior years’ July monthly generation more closely. There is evidence that hydroelectric output is waning, including power prices in the Pacific Northwest that are now at a premium to those in Southern California during light demand hours, compared to a discount in June. As midsummer brings the potential for the strongest power demand during the season and the period when all available resources are brought into dispatch, this year will be marked by an acceleration in demand for gas as hydroelectric output returns to more normal levels.”
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