Physical natural gas prices overall added 4 cents Tuesday as bidweek trading got into full swing. Traders saw most resorting to historical purchases and sales of bidweek volumes with no one trying to buy or sell index based on expected market direction. Eastern and Northeast points led the day’s advance, but most market points were steady to slightly higher, and only a few reported losses. At the close of futures trading, June had skidded 6.3 cents to $4.174 and July was off 6.0 cents to $4.224. July crude oil added 86 cents to $95.01/bbl.
“Prices don’t seem to be moving very much because there isn’t much weather anywhere. The Northeast is a little different because it is supposed to get hotter in Boston over the next couple of days,” said a Houston-based northeast marketer. “The basis on Algonquin [June] is about $2.20 for next month and then it drops way back since they are doing a bunch of maintenance. It is bid at $2.15 and offered at $2.38 with the last trade at $2.28. That’s huge.”
By comparison, other eastern delivery points showed much more modest basis. “Tennessee Zone 6 200 L is about $1.40, and it was $1.70 earlier. [Tetco] M-3 is plus 9 [cents] and Transco Zone 6 New York is plus 20. You can’t transport gas out of the Marcellus into Algonquin, so that’s the reason the basis on M-3 and Zone 6 New York is so low,” he said. July basis for Algonquin is 72 cents bid at 74 cents offered.”
Algonquin Gas Transmission posted a critical notice of capacity constraint on its website. The notice affected interruptible and secondary out-of-path nominations at the Southeast and Cromwell compressor stations as well as the Beverly meter station.
Searing near-term heat is expected for the Midwest and East. “Midsummer heat will arrive just a few days after the unofficial start of the season,” said Alex Sosnowski, AccuWeather.com meteorologist. “After shivering cold over the Memorial Day weekend, starting Wednesday, record-challenging heat will blast into some areas of the Ohio Valley and Great Lakes before spreading to the East later in the week. Some locations will experience a 50- to 55-degree temperature rise compared to morning lows this past weekend to afternoon highs Wednesday to Friday.
“High temperatures at or above 90 degrees are forecast on one or more days. A few locations could have clouds and rain one day, followed by 90-degree temperatures and blazing sunshine the next. In some cases, temperatures will challenge or break record highs during the period from the Great Lakes to the Atlantic Coast. Even areas that received accumulating snow in upstate New York and New England this past weekend will feel the heat.”
Gains in next-day power prices supported the rise in gas prices. IntercontinentalExchange reported that power for delivery Wednesday into the New England Power Pool’s Massachusetts Hub rose $5.47 to $46.10/MWh, and deliveries to the PJM West Hub rose a stout $19.86 to $63.19/MWh.
Quotes on Algonquin Citygates for Wednesday packages rose 30 cents to $4.47, but upstream deliveries to Iroquois Waddington were flat at $4.61. Gas on Tennessee Zone 6 200 L added 31 cents to $4.55.
On Dominion, next-day gas was seen at $4.14, up 15 cents, and on Tetco M-3 gas came in at $4.31, up 21 cents. Gas bound for New York on Transco Zone 6 added 32 cents to $4.37.
Other points were not quite as exuberant. Wednesday deliveries to the Henry Hub rose 3 cents to $4.19, and at the Chicago Citygates, next-day gas was flat at $4.19. On El Paso Bondad gas came in at $3.94, up about 8 cents, and at the SoCal Citygates Wednesday parcels changed hands at $4.30, up 13 cents.
Futures trading was lackluster, and no strike prices saw unusual activity as options on June futures expired. “We traded between $4.17 and $4.19 all day. “I don’t think this is a new support zone, and this price level doesn’t really signify a whole lot,” said John Woods of J.J. Woods and Associates. “$4.05 is more of a support level, and resistance for this market is up around the $4.25 level. It was a lackluster day, and traders were content to roll positions from June into July. It was bookkeeping.”
With numerous fundamental factors in play, top analysts see most of them in equilibrium with weather playing the deciding role. “Although the weather remains as the overriding driver behind price movement in this market, other elements are certainly affecting seasonal storage increases. However, most of these items appear to be offsetting,” said Jim Ritterbusch of Ritterbusch and Associates in a morning note to clients. “For instance, production is maintaining a strong pace that we would estimate at around 2% above a year ago. But the bearish implications of this factor are being partially negated by strength in industrial demand that appears to be spinning off of an improving U.S. economy.
“In the background, we still see coal-fired power plants pulling demand away from the gas market given current price relationships. But here also, some of this coal-related reduction in gas demand appears to have been offset by some nuke outages. At the end of the day, we expect the weather to be the dominant driver of price looking out well into next month when summer cooling needs should come into clearer focus.
“The longer prices maintain a $4 handle, bearish forces will continue to be set into motion that would include the coal-to-gas substitution effect as well as a stronger production pace both in relation to prior expectations and a year ago. These elements will act to accentuate downward price response to first evidence of a sustainable cooling trend. With this in mind, we are leaving open the possibility of a return to a $3 price handle. While we will continue to caution against attempts to pick a top to this strong advance of the past couple of weeks, we are still advising maintaining bear spread strategies such as long January 2014 — short July 2013.”
WSI Corp. in its 11- to 15-day forecast Tuesday said, “Temps are warmer today compared to Friday over the northern tier of the country and most of Canada. All signs point to a split flow pattern developing over the Lower 48 as the polar jet retreats toward the pole while the subtropical jet turns active. The risk is to the cooler side in the SE, especially on PM highs, if the GFS [Global Forecast System] is correct in expanding tropical moisture northward from the Caribbean next weekend.”
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