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Natural Gas Prices Drop on Mild Weather Forecast; Futures Slide Below $4
Natural gas cash prices overall for weekend and Monday delivery played catch-up with Thursday’s screen decline and dropped on average approximately 16 cents nationally. Volatile Northeast and eastern locations led the slide and double-digit declines were common.
Natural gas futures continued to probe lower Friday, with the July contract falling below important psychological support. At the close of futures trading, July dipped below $4, settling at $3.984, down 3.9 cents, and August finished at $4.003, 4.0 cents lower on the day. July crude oil dropped $1.64 to $91.97/bbl.
“The falling prices are a good sign, but I don’t think it will be like last year,” said a Midwest buyer. “We are down to our minimum loads and will be putting most of our gas in storage.
“Since our storage was bone-dry, we’ve got to fill ‘er back up. All the restrictions Northern Natural had during May have been lifted for June, and we have more flexibility now. It has been a crazy month; you just don’t expect to see all four seasons in Nebraska in one month. We had a record low on the 12th and a record high on the 14th. It’s supposed to be down in the 50s over the weekend and only a high of 65.
“Our gas burn is down to 30,000 to 35,000 Dth/d, and we have gotten estimates from our electrical generation customers of what they will use for the month, but they don’t tell you when they will use it. We try to get some of that purchased at first of the month prices.”
Quotes for weekend and Monday gas on Alliance fell 15 cents to $4.04, and deliveries to the Chicago Citygates slipped 13 cents to $4.06. Packages on Northern Natural Ventura were seen at $3.93, down 9 cents, and gas into ANR ML7 slid 34 cents to $4.03.
Gas for the weekend and Monday on Michcon gave up 15 cents to $4.23, and on Consumers deliveries came in at $4.32, 11 cents lower. At Dawn, parcels were quoted at $4.40, a dime lower.
Sharp weather-driven declines in power for Monday at eastern points helped lead the way for a decline in weekend and Monday gas prices. IntercontinentalExchange reported that power for Monday delivery into the New England Power Pool’s Massachusetts Hub fell $24.82 to $62.42/MWh and peak deliveries Monday to the PJM Western Hub dropped $43.97 to $48.50/MWh. At the New York Independent System Operator’s western New York delivery point (Zone A), Monday power fell $27.82 to $45.38/MWh.
Temperature forecasts for eastern points called for falling temperatures over the weekend. Wunderground.com predicted that Friday’s high in Boston of 94 would plunge to 72 by Monday, one degree above normal. New York’s 93 Friday high was forecast to drop to 75 on Monday, right at the normal high for this time of year. Washington, DC, was expected to see its 91 degree high on Friday fall to 77 by Monday, 3 degrees below normal.
At the Algonquin citygates, maintenance issues kept weekend and Monday quotes up 10 cents to $6.67, and on Iroquois Waddington gas came in at $4.67, down 47 cents. On Tennessee Zone 6 200 L weekend, and Monday gas changed hands at $5.30, a stout 98 cents lower.
Deliveries to Dominion settled 29 cents lower at $3.88, and deliveries to Tetco M-3 dropped 26 cents to $4.07. Quotes on gas bound for New York City for the weekend and Monday fell 75 cents to $4.18.
Futures traders saw the slide below $4 as significant. “Underneath $4 [support] is an important technical break,” said a New York floor trader. “Volume was light, but we did slide below $4, although the market didn’t tear through it.”
Longer term weather forecasts for the most part are going to be a challenge for the bulls. In its Friday morning forecast, MDA Weather Services predicted intense heat for portions of the Eastern Seaboard, from north of North Carolina to as far west as eastern Ohio in the one- to five-day period, but by next week, normal to below-normal temperatures are expected to prevail east of the Continental Divide. West of the Continental Divide much-above-normal readings are expected.
“The forecast carries many of the same themes as the past few days, though some of the details have changed a bit. This includes some marginal warm change over the eastern half, which has scaled back composite below [normal temperature] coverage as compared to [Thursday],” the forecaster said in its morning six- to 10-day outlook. “The core heat, however, will remain focused out West, where widespread above- to much-above-normal anomalies are likely to carry through the period. Models remain in fairly good agreement on the big picture, helping to keep confidence moderate to high overall.”
Analysts see a soft market ready to work lower as temperature forecasts moderate. Thursday’s “sizable 16-cent selloff in the face of a seemingly neutral storage injection provided testament to an underlying weak tone to this market, one in which nearby futures remain highly sensitive to bearish shifts in the temperature views,” said Jim Ritterbusch of Ritterbusch and Associates.
“While the bulls can continue to cite a huge supply deficit of about 665 Bcf against a year ago, the shortfall against the averages remains at less than 4% and capable of contraction as the cooling season swings into full force. While a potentially hot summer and possible active hurricane season could continue to restrict selling interest into the fall and winter contracts, we look for the summer portion of the spread curve to remain vulnerable to temperature moderation as is now being projected out toward mid-June.”
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