Bidweek opened with the cash market advancing over a dime nationwide Monday with the strongest performers in southern California and the Northeast. Traders suggested a long approach to the Northeast cash market but acknowledged whether to buy index and sell physical or sell index and buy physical was a weather call. At the close of futures trading April had fallen 4.9 cents to $2.226 and May had slid 5.4 cents to $2.319. May crude oil gained 16 cents to $107.03/bbl.
The strong moves for gas delivered to southern California locations did not impress traders. “Strong is a relative term,” remarked a southern California trader.
“The only points that are strong are those on Transwestern Needles for the month of April. SoCal Needles is also out and that is making the basins weak and the [SoCal] Border strong at about $2.40. That spread is at 43 cents and it has been going for the mid 20s.”
Meanwhile, in the March spot market, quotes on SoCal Border jumped about a quarter, and deliveries to SoCal Citygate rose about 28 cents. Gas on El Paso Mainline South surged close to 30 cents. Other western points were less exuberant. PG&E Citygate and Malin both rose about a nickel.
Marketers were testing the weather to see if a bid week strategy of buying index and selling spot would pay off or selling index and buying spot gas would be a better plan. “I don’t know,” said an eastern marketer. “Which way is the weather going to go. Is it going to be warmer than normal, normal, or cooler than normal?. That’s the bet,” he said.
“There’s a lot of gas that has been coming out because of storage, but I almost always lean towards the market getting a little stronger than a little weaker. If we just get a few abnormal [weather] days, the market pops up quite a bit. I think there will be a few days when it gets kind of chilly. Some kind of front moves through during the spring, and that happens a lot in New England.”
Next-day gas delivered to Algonquin Citygates and also to Tennessee Zone 6 200 L jumped nearly 75 cents and gas into Iroquois Waddington added nearly 35 cents.
The Weather Channel reported Boston’s high of 42 felt like 33 because of strong, gusty winds. The normal high for this time of year is 48, and Tuesday’s high is expected to reach 46 and Wednesday is anticipated to be 52.
Gulf Coast points had trouble matching the strength of the Northeast and West and were higher by about a dime.
Futures headed south in spite of the cash market strength.
“We literally had a one cent range for a couple of hours and we are now in the low $2.20s which is significant, because if we break the $2.20 level on the downside, the next thing you are going to see is going to be about $2.12. $2.20 is the March low, and $2.12 is considered a bear [technical] target,” said a New York floor trader.
The trader said that in contrast to last week’s warmth, “We are going into a little bit of a cold spell. We are expecting to see 30s at night and 50s during the day. We’ll probably get a small build this week, and there is plenty of gas in the ground.”
He added that Tuesday was options expiration and “We may not see it under $2.25. Those traders who sold $2.25 calls are likely to defend their position. This is where they would like to see the market, between $2.20 and $2.25 and still hold technical support,” he said.
Forecasters still see above normal temperatures throughout the bulk of the country for the next two weeks, but not at the variances seen last week. In its 11- to 15-day outlook WSI Corp. of Andover, MA says “Above normal temperatures are forecast over the southwestern and central U.S. Anomalies as warm as 8 degrees above normal are anticipated over the northern Plains. More seasonable readings are expected to prevail along both coasts.”
Risks to the forecast include “Temperatures may trend colder over most of the central and eastern U.S. than currently forecast. The medium range models all advertise the EPO [Eastern Pacific Oscillation] and WPO [Western Pacific Oscillation] will transition to phases more favorable for cold weather over the continental U.S. in early April.”
Risk managers seeking to protect clients from further downside price erosion suggest purchasing put options, but the prospect of new hedge positions at such low prices is not appealing. “On a trade basis we will continue to hold current positions and view any significant rally from current levels as an opportunity to do some forward sales in the summer strip,” said Mike DeVooght, president of DEVO Capital, a Colorado trading and risk management firm.
“At this time, and at these price levels, we are not excited about establishing new hedges here. But we are going to purchase October $2.50 puts to cover the summer strip. We will use a stack and liquidate strategy,” he said in a weekend note to clients.
Currently DeVooght advises trading accounts and end users to stand aside, and those needing downside price protection should purchase October $2.50 put options at a cost of 25 to 27 cents.
Market pundits see nothing on the horizon to suggest anything other than a normal refill. “The cosmic fix is in …winter is over, the heating season but a distant memory, and now, we’re off to the summer races, sort of,” said John Sodergreen editor of Energy Metro Desk. It is his take that “summer is looking mild, and so, the storage fill will likely be some unconscionably high number come November. March was crazy warm, and now, April is expected to be well above normal for most parts in the lower 48.”
He added that there is nothing on the distant tropical horizon “that points to anything but seasonal norms.”
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