On balance the cash market averaged out to the loss side of the trading ledger Monday, but double-digit strength was noted at northeastern points, and deliveries into southern California points also registered gains. Futures markets headed south as revised weather forecasts called for an extended period of warmth throughout the eastern two-thirds of the country. At the end of futures trading April had fallen 12.9 cents to $2.355 and May had slid 12.8 cents to $2.472. April crude oil added two cents to $106.72/bbl.
“We have a couple of days of cold weather and our burn is up a little bit,” said a California utility manager. “It looks like the weather will come back to the low 70s again. It was 75 yesterday [Sunday], and the weather out here has been pretty erratic. I don’t think the screen is behaving like the weather or you would see a lot more price movement.”
“A brief, but sudden, big change is coming to the weather in California and the Southwest Tuesday into Wednesday. A storm rolling into the Northwest at the start of the week will blast the region with gusty winds and much colder air,” said AccuWeather.com meteorologist Alex Sosnowski. He added that in “the Sierra Nevada and other mountains of the West, the push of cold air will be accompanied by a period of snow. There is the potential for brief whiteout conditions as the leading edge of the cold air arrives.”
Quotes for southwest gas were firm. SoCal Citygate and SoCal Border were higher by a couple of pennies, and El Paso Southern Mainline added just over a nickel.
Farther north next-day prices lagged. Malin was seen a couple of cents lower, and PG&E Citygate was off by almost a nickel.
Quotes jumped by double digits on Northeast pipes as cooler temperatures were forecast. Super Tuesday elections were forecast to see cold temperatures in the Northeast. “A high pressure system will be anchored over the East, providing plenty of sunshine and light winds. It will be chilly across Vermont and Massachusetts with highs in the 30s. Milder weather will be farther south, with upper 40s and 50s across Virginia, while upper 50s and 60s will be across Georgia,” said AccuWeather.com meteorologist Andy Mussoline.
Tuesday deliveries on Algonquin soared close to 70 cents, and Dracut was quoted up by nearly a half dollar. Gas into Iroquois Waddington rose by nearly a quarter, and deliveries to Tennessee Zone 6 200L were just over 50 cents higher.
The large swings in the daily market barely registered on term deals. “On Friday April Algonquin traded at $2.375 to $2.385 and it’s $2.375 bid and $2.385 offered right now. It’s kind of funny. The Board has fallen 12 cents today, but the prompt Algonquin, [TetCo] M-3, and [TransCo] Z-6 haven’t moved at all,” said an eastern marketer.
“I don’t know if it was just one of those days, but the [northeast] basis didn’t move,” he said.
Prices slumped across the Midwest. At the Chicago Citygate next-day gas fell nearly a nickel, and on MichCon gas slipped just more than a nickel.
Weather forecasts turned significantly warmer over the weekend. MDA Information Systems in its 11- to 15-day outlook shows above- to much-above-normal temperatures east of a broad arc extending from Montana to Colorado to New Mexico. “This period has trended even warmer than [Sunday] and the Friday ‘forecast of the forecast’ in keeping SA’s [significantly above normal temperatures] locked in longer and over a more expansive area.
“The setup as influenced by the strongly +EPO [Eastern Pacific Oscillation] has more of a late spring look than early to mid March, with strong ridging spread about the eastern half. This ridge will provide plenty of extremes, and record-setting warmth is certainly within the realm of possibilities. The West could see a slight expansion of belows as the core of the warmth moves into the Northeast, but major cold is not expected anywhere in this period.”
Futures traders see the day’s decline as potentially setting up more movement to the downside. “Our charts still show a fifth [Elliott] wave to go, and this is the fourth warmest winter in 100 years,” said a Washington, DC, broker.
“In the end there is just too much of the stuff around. We are starting to see the low price attract alternative demand. The Wall Street Journal said Ford and Chevy were developing natural gas pickups (see related article), but you are not going to see that [demand] instantaneously.”
Top traders see the fundamentals of supply and demand as still unfavorable, but for the moment there is no need to rush into short hedges. “The fundamental news flow continues to be negative, more than adequate supplies and mediocre demand,” said Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm.
“It seems that the news that gave the market the boost in January has been forgotten for now. It might have made the bears pull back, but they will be back if we don’t start to see an uptick in demand or a drop in the storage numbers.” DeVooght said for now he will maintain current positions, but would “view any significant rally from current levels as an opportunity to do some forward sales in the summer strip.
“Our current producer hedges are about to run out. At this time and at these price levels, we are going to hold off on doing any sales for the summer strip.” DeVooght suggests to those interested in downside protection buying April-October $3 put options for a debit of 25-28 cents.
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