Cash prices soared Thursday in the Northeast and had another solid day of gains in nearly all other regions of the U.S. because of hot weather, strong power generation demand and continued help from the futures market despite the bearish 89 Bcf net weekly storage injection reported by the Energy Information Administration for last week.
Near-month gas futures rallied 34.7 cents to $6.129/MMBtu on the coattails of a new all-time record high in crude oil futures of $76.85. August crude settled at $76.70, up $1.75/bbl, because of continuing unrest in Nigeria and the Middle East and a refinery fire in Venezuela.
The gas futures market overcame a strong indication that working gas in storage could reach 3 Tcf in only five more weeks. The 89 Bcf weekly injection surpassed most industry expectations. Bentek Energy had predicted an injection of 83 Bcf. The ICAP storage options auction called for an 80 Bcf injection, and a Reuters survey of 22 industry players averaged 76 Bcf. Working gas levels stood at 2,704 Bcf as of July 7, which was 425 Bcf more than at the same time last year and 27% above the five year average. Injections will only have to average about 60 Bcf/week over the next five weeks to reach 3 Tcf by the week ending Aug. 11 with another 12 weeks remaining in the injection season after that.
Cash and futures prices have overlooked that bearish signal this week because of above normal temperatures and on Thursday because of the global crude oil market. After rising the previous three days of the week, the cash continued its upward run Thursday, with spot price increases anywhere from a few cents in the Rockies to as much as 75 cents in the Northeast, where prices moved well over $7.
The New York and Algonquin citygates both jumped around 70 cents to near $7.40, and Iroquois Zone 2 soared 72 cents on power generation demand. Zone 2 now stands more than $1 above bidweek levels. In fact, all market locations have now surpassed bidweek levels.
“We just roared out of the gates today,” said a Northeast marketer. “We had some good power gen demand. It’s hot and humid and demand is strong. But prices proceeded to tumble later in the session as a wave of offers swept over the marketplace. It started out up about 80 cents but we saw prices peel back quite a bit. It still was much stronger than yesterday — probably the strongest day yet this week. But I think we are about to see the end of this rally because it looks a little cooler for the weekend.”
A Gulf Coast region marketer noted that the inability of futures to move down on the bearish storage number showed that a lot of futures traders were short and had to cover when the market reacted to the crude oil run-up.
“There’s seems to be a lot of demand in the cash market mainly from the power generators but also from the utilities; you never really know what they are buying for,” said a Chicago area marketer. “Most everyone is buying citygate delivery instead of transport today because many of the spreads aren’t working, especially from the Midcontinent and Southwest basins,” he said. “It’s pretty hot down there so a lot of that gas is staying home.
“Chicago was strong and many of the other areas — MichCon, Consumers and Dawn — were weak so that’s been keeping gas in the Chicago area. The Alberta-to-Chicago spread isn’t fantastic but its working.”
He said while power generators and utilities have been out buying gas this week he hasn’t heard from any industrials. “The gas-fired power plants are the real drivers behind this run-up,” he said.
Chicago rose 14 cents to $5.79, which was about flat to MichCon. NGPL’s Amarillo line was up only a few cents to $5.57. NGPL TexOk climbed nearly 20 cents to $5.70. Permian and San Juan Basin prices, however, were flat to down a penny or two, and the most Rockies points gained only a few cents to as much as a dime. In California, most points were up about a nickel; SoCal Border, however rose by more than a dime to the low $5.90s.
“One of the things I saw today for the first time this month was Henry Hub cash actually trading over the Nymex at one point to about an 8-cent premium,” said a Gulf Coast producer. “Henry Hub traded about 3-4 cents below Nymex on average, but at one point it hit $5.96 when the futures contract swap on ICE was at $5.88. When you see that, it means the market is in backwardation mode and you can see storage gas start coming out to take advantage of that anomaly.
“At some locations today it made sense not to inject gas into storage or to even withdraw it,” he added. “The people with salt dome storage probably were taking advantage of that and some of the pipelines probably jumped on board. Typically if you don’t have the contractual rights to manage your storage that way you can’t take advantage of it but some people can. With the operational restrictions that we’ve been seeing on pipelines related to high storage levels, this little market turnaround could help relieve some of that operational pressure. It should help the pipelines breathe a little bit.”
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