Cash prices gained and futures managed a reversal following news of a storage build that was larger than many industry experts were expecting, but much smaller than historical comparisons for the week.
The overall cash market gained on average almost a dime with particular strength in the Northeast and East. Nearly all points gained with many registering double-digit advances. The 10:30 a.m. EDT Energy Information Administration (EIA) inventory report came in at 33 Bcf and was larger than what the market was expecting. Futures prices initially plunged but by the end of the day recorded an advance. At the close of trading the August contract had risen 2.1 cents to $2.874 and September had gained 3.2 cents to $2.869. August crude oil rose 27 cents to $86.08/bbl.
Northeast marketers pointed to warmer temperatures as driving New England next day gas higher. “It’s warming up. There’s a high of 88 tomorrow [Friday] in Boston, then probably 90 on Saturday, 86 Sunday and back up to 90,” said a Houston-based trader.
He added that the [futures] market made a nice turnaround from early lows, but from a storage standpoint “we are way behind other injection years but not in actual storage inventories. There should be some hefty builds in September provided there is room for the gas. At that point you will see prices dropping off a cliff.
“The only bidders we have right now are the power plants that are burning gas when it is hot. A lot of baseload power has switched to gas and generators are utilizing their peakers more.”
Quotes on Algonquin Citygate jumped close to 85 cents and deliveries on Tennessee Zone 6 200 L added nearly 80 cents. Gas into Iroquois Waddington added over a nickel.
Algonquin Gas Transmission posted a critical notice for Friday restricting interruptible and secondary nominations sourced upsteam of both the Southeast and Cromwell compressor stations.
Power demand in New England was also strong. IntercontinentalExchange reported that next-day locational marginal prices at the Massachusetts Hub jumped a stout $13.71 to $58.85/MWh.
Next-day prices at eastern points also rose. Deliveries on Transco Zone 6 New York jumped 15 cents and parcels into Tetco M-3, Dominion, and Clarington all added a dime or more.
Temperatures were also expected to be above normal in the East. Forecaster Wunderground.com predicted the high in Philadelphia Friday would reach 88, five degrees above its seasonal norm.
The National Weather Service in suburban Philadelphia reported that “weak high pressure over the central Appalachians will be the dominant weather feature through Friday. A stalled front to our south will begin to move northward as a warm front later Friday and be north of the region by Sunday. Then hot and humid Bermuda high pressure controls our weather Monday through Wednesday. Low pressure eventually will push east from the upper Midwest, bringing a cold front into our area around midweek”.
Rocky Mountain prices also posted representative gains. Northwest Pipeline Wyoming was up by just more than a nickel, but the Cheyenne Hub, CIG Mainline and Opal all added about a dime.
Futures traders saw the day’s action of the August contract as not indicative of a move either higher or lower. “The only thing bearish about today’s EIA number was that it was higher than what people were expecting, but it was about 50 Bcf below historical averages,” said Tom Saal, vice president at INTL Hencorp Futures in Miami.
“The trend of low injections is continuing; it’s not a data glitch, it’s making things tighter than they were. Each week we are continuing to put in those kinds of levels below historical it’s making things a tad tighter. At least prices are off the $2 carpet, but only by 80 cents.”
Saal is a student of Market Profile, but curiously it is not giving any guidance to the market’s next move. “The first slug of volume was after the number came out, but there was no follow-through. Prices just sat there. Later in the day, the next high-volume period was as prices started rising. That tells me the initial sellers bought it back. Almost like a day trade,” he said.
He added that the day’s price action was just indicating traders were trying to make a profitable day trade and not indicative of any long-term direction. “It was a positive day from the standpoint of we did all that activity, but in terms of Market Profile it is a neutral day. A neutral day is a day of indecision.”
One of the central themes of Market Profile is its tendency to test value areas or price zones either above or below present price levels. “I don’t think we have any value areas either above or below the market,” Saal said. “It’s been an orderly move up, and that could be viewed as constructive.
“One of the problems of a neutral day finale is that it doesn’t give any indication of the market’s next move. It could be top or it could be a continuation.” Saal identified Thursday’s value area between $2.902 and $2.808 in the August contract and expected the market to test that range Friday.
The 10:30 a.m. EDT eastern release of inventory figures did give traders and analysts additional input into just how plump season-ending inventories are likely to be. The present 516 Bcf five-year average storage surplus has been consistently eroding, and this week’s thin build was well below historical averages. Last year a stout 87 Bcf was injected at this time, and the five-year average is 90 Bcf.
Traders were looking for a larger increase. This week, estimates were largely in the mid-20 Bcf range, but rumors were circulating that there might be a revision in this week’s report. “Last week we heard some whispers that the EIA had planned to run a revision for last week’s 39 Bcf build number, which would in effect have possibly bumped this week up to the 30 Bcf level,” said John Sodergreen, editor of Energy Metro Desk. “None of these ‘whispers’ were confirmed by EIA. And by Tuesday this week, the whispers had all but died. Still, one never knows. While the Metro Desk consensus came in around 25 Bcf this week, the editor and quite a few of our more senior analysts are approximately 5 Bcf higher.”
Much of the low injection reports have been credited to healthy power burns, and to the extent warm weather and above-normal air-conditioning loads in key energy markets contribute to that usage, next week’s storage report is likely to show below-normal builds as well. For the week ended July 14 the National Weather Service (NWS) forecasts that New England will experience 53 cooling degree days (CDD), or 13 more than normal; New York, New Jersey and Pennsylvania are likely to endure 58 CDD, or three more than normal; and the Midwest from Ohio to Wisconsin is anticipated to experience 59 CDD, or four more than normal.
Other analysts were close to the Metro Desk consensus. A Reuters survey of 23 traders and analysts revealed a 26 Bcf sample mean with a range of 19-34 Bcf. Industry consultant Bentek Energy expected a 24 Bcf build, and Houston-based IAF Advisors calculated a 25 Bcf increase.
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