Physical natural gas overall fell 2 cents in Thursday’s trading, but that followed the typical Thursday script of traders getting their deals done prior to the release of Energy Information Administration (EIA) inventory data.
Northeast points were the biggest losers as next-day power prices fell, but eastern locations suffered their share of double-digit drubbings as well. The EIA reported an increase of 95 Bcf, well above trader expectations, and prices spiraled lower, setting up weak follow-through cash trading Friday. At the close, August futures had shed 15.5 cents to $3.582 and September had dropped 15.7 cents to $3.577. August crude oil gained $1.55 to $97.05/bbl.
Gas buyers in the Midwest were having to juggle uncertain load for power generation with fluctuating weather patterns. “Our power generation customers had a unit trip off earlier and needed gas pretty badly for Tuesday and Wednesday, but today they are in the same situation; they haven’t got the unit back on, and we thought they might use not quite as heavily,” said a Midwest gas buyer.
“They haven’t turned the unit back on because it just keeps raining. The forecasters said the rain would stop by noon, but by 2 p.m. it’s still raining and they keep dropping the temperature down.
“We’ll just be using about 30,000 Dth Thursday, but I wish we could buy when prices fall, but we have enough baseload gas coming at us so we don’t need any more. You hate to pass it up when it gets down like that, but with the unpredictability of the electric generators, I don’t always know if I can use it. I don’t want to buy it and not use it and then pay penalties to store it,” he said.
Gas for delivery through the weekend on Alliance eased 2 cents to $3.73, and at the Chicago Citygates gas was also seen at $3.73, 2 cents lower. On Northern Natural Gas, Ventura packages were quoted at $3.64, 2 cents lower. At Demarcation next-day gas came in at $3.62, 3 cents lower.
Next-day gas at East Texas locations resisted the trend downward as next-day power prices soared. IntercontinentalExchange (ICE) reported that peak power delivered to ERCOT (Electric Reliability Council of Texas) North jumped $65.88 to $133.54/MWh. Friday gas at Katy rose 5 cents to $3.73, and gas at the Houston Ship Channel was quoted at $3.71, up 6 cents.
AccuWeather.com reported that Thursday’s high in Dallas of 101 was expected to reach 104 Friday.
Weak next-day power prices proved to be the demise of next-day gas at northeast and eastern points. ICE disclosed that Friday peak power delivered to the New England Power Pool’s Massachusetts Hub fell $5.95 to $37.87/MWh, and at the PJM West Hub Friday peak power fell $7.27 to $41.69/MWh.
At the Algonquin Citygates, quotes came in at $3.91, down 25 cents, and gas into Iroquois Waddington fell 4 cents to $4.09. Gas on Tennessee Zone 6 200 L tumbled 33 cents to $3.83.
Eastern points also did not go unscathed. Deliveries to Dominion Friday fetched $3.23, 3 cents less than Thursday deliveries, and on Tetco M-3 gas was quoted at $3.58, down 16 cents. Gas bound for New York City on Transco Zone 6 fell 47 cents to $3.70.
Analysts weren’t expecting much in the way of surprises in the latest storage figures. Just about everybody agreed that the number should come in right around 88-90 Bcf. On its face the expectation was a bearish number, ahead of last year’s 58 Bcf and the 79 Bcf five-year average.
The report took on even more bearish overtones as the 95 Bcf report threw everyone off guard and immediately prices plunged. After the report August futures sank to a new session low quickly. August futures traded as low as $3.583 and by 10:50 EDT August was trading at $3.598 down 13.9 cents from Wednesday’s settlement.
Some suggest that forecasts could be improved if the dissemination of storage data were enhanced.
“The extremely opaque producing region continues to vex market analysts and everybody else trying to get a more accurate handle on supply and demand trends,” said John Sodergreen, editor of Energy Metro Desk. “One could argue that the better we all are at forecasting this stuff, the better off consumers are, on just about every level. We think it’s time for the EIA (and/or FERC) to once again force the hand of producing region pipe and storage operators to start posting inter- and intra- state flows; it’s good policy for consumers and producers alike and, as such, good for the country. Just saying. And while regulators are doing this good deed, why not do us another favor and reset the various storage regions; looking across the current landscape, we think the producing region should be reclassified to reflect shale reality. The East Consuming region needs a reset as well. Last time we checked, the region has become a major producer.”
Estimates for the storage figure were tightly bunched but off the mark. IAF Advisors in Houston expected an 88 Bcf increase, and a Bloomberg survey revealed an average 89 Bcf build. Bentek Energy, utilizing its flow model, calculated an 88 Bcf injection.
Technical analysts aren’t willing to call a market bottom. “[We] see only one way to signal natgas may have hit bottom, get back above $3.850-3.909,” said United ICAP’s Brian LaRose. “Until and unless this can be accomplished we will continue to favor lower prices from here. How low can natgas go? LaRose sees the “next candidate[s] for support as the big cluster of wave count targets and ratio retracements stretching from $3.481 to $3.386. A head and shoulders top still targets $3.331-3.312,” he said in closing comments Wednesday to clients.
WSI Corp. in its Thursday morning six- to 10-day outlook said, “Today’s forecast is slightly cooler over the central U.S. when compared to the previous forecast.”
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