The cash market slumped another five cents on average Friday with virtually all locations posting losses and Northeast locations suffering the greatest setbacks as hyper-warmth was forecast to return to the area on Monday. California points also weakened. Futures held relatively steady and at the close May had eased two-tenths of a cent to $1.989 and June had fallen eight-tenths of a cent to $2.084. May crude oil dropped 81 cents to $102.83/bbl.
Traders following longer-term Northeast markets reported only small changes and very modest activity. “Basis trading is dead and little things are happening here and there, but it has been a very, very slow week,” said an eastern trader.
“The May Algonquin contract is about 29.5 cents [over Nymex] right now, and there was one move earlier in the week and even then there weren’t big volumes, just little things here and there. It’s hung right around the 30-cent mark for quite a while. As far as what I have seen nothing has made a significant move. Everything has been pretty steady, and I haven’t seen any movement on the spreads or rolls, and trading has been fixed-price to basis.”
When queried about prospects for the rest of the shoulder month and the summer the trader said, “at $2.21 May-October seems awfully cheap. There has to come a time when evaluating a position that the market has to come back at some point.”
Monday prices at Northeast points plunged as temperatures were forecast to soar. AccuWeather.com forecast the high in Providence, RI, Monday would vault to 85, miles above its seasonal high of 57.
Quotes on Algonquin Citygate deliveries slumped by 20 cents, and prompt gas on Tennessee Zone 6 200 L dropped by just more than 20 cents.
Other points were not quite as weak. Deliveries to both Transco Zone 6 NY and Tetco M-3 eased by a couple of pennies apiece.
Points weighed down by Marcellus production also fell. Tennessee Zone 4 Marcellus dropped nearly 20 cents.
Forecasters see a warm start to next week, but nothing on the order of the March anomalies in the East and Midwest. “We shifted warmer for the Northeast cities early [this] week (stronger 80s spiking in Boston), but still the heat breaks down by mid to late week,” said Matt Rogers, president of Commodity Weather Group. “The six-10 day is variable with only a weak, transient cooling translating across. Otherwise, we see another round of warming pushing back toward the Midcontinent, especially for the 11-15 day as another cool trough pushes into the West. Both the Midwest warmth and the Southwest-California cooling could see stronger anomalies, while the East takes a bit longer to return to the warmer side.”
In the nation’s heartland prices for Monday deliveries also softened. Northern Natural Demarc and Northern Natural Gas Ventura were each off by a couple of pennies. Deliveries to the Chicago Citygate skidded by just over a nickel.
West Coast prices also fell. Malin, PG&E Citygate, and SoCal Citygate all dropped by around a nickel.
Futures trading was uneventful with price ranges only reaching four cents, and according to some that may set the pace for the remainder of April. “[Friday’s] price action will likely prove similar to many trading sessions going forward through the balance of this month. Although the trading range was limited to only about 4 cents, the establishment of fresh 10 year lows keeps this bear move alive,” said Jim Ritterbusch of Ritterbusch and Associates.
“Our revised downside objective to the $1.85 level approximates today’s next-day spot pricing at Henry Hub. However, we will continue to advise that another 12-13 cents lower could require another week’s time since daily price drops are unlikely to exceed 3-4 cents at these sub-$2 levels. Regardless, we still view the attainment of $1.85 as high probability as we maintain a continued bearish stance in this market.”
Ritterbusch also pointed out the ineffectiveness of a lower rig count on the market. “[Friday’s] Baker Hughes gas rig count indicated a drop of 23 to 624, a level some 29½% below a year ago. All in all, we will continue to caution against any attempts to pick a bottom to this market either via flat price or bull spreads anywhere along the curve.”
Other rig count metrics point to less production down the road as well. The U.S. total rig count slipped 29 to 1,950, still above last year’s 1,772, and the number of horizontal rigs dropped 20 to 1,145, still above last year’s tally of 1,003. The slide in the gas-directed rig count puts gas rigs at the lowest point since April of 2002.
Veteran industry observer Rusty Braziel, now principal of RBN Energy, notes continued high production that doesn’t seem to be responding to supposed production cuts and a lower rig count. “[G]as production has declined by only a couple of Bcf/d since the high point late last year and has actually increased in the past few weeks,” he said in a blog posting.
Braziel points out three hurdles to lower gas production. “[D]ue to the huge increases in the productivity of natural gas rigs, one rig can now generate two to three times the incremental production of rigs just a few years back; associated gas from growing crude oil production is increasing; producers are still aggressively pursuing wet gas plays.
Braziel says recent price weakness is no surprise and “there is nothing magic about natural gas below $2.00/MMBtu. But at the same time, there is everything magic about gas prices this low. We have entered an entirely new world of energy, and natural gas opened the door. It is truly a breakthrough to the other side.”
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