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Northeast Gains Mask Overall Weakness; Futures Rally Off Lows
Physical natural gas prices fell an average 3 cents overall in Monday’s trading, but that hid a much broader and deeper market decline. If multi-dollar advances on volatile Northeast pipelines are factored out, the market decline was just shy of 16 cents. Offsetting the Northeast strength were stout losses at California and Rocky Mountain points. After a weak open, May natural gas futures trimmed losses to nine-tenths of a cent to $4.015 and June eased five-tenths of a cent to $4.061. May crude oil fell 16 cents to $97.07/bbl.
New England points were expected to see a significant shift to cooler temperatures Tuesday and next-day prices soared.
Forecaster Wunderground.com predicted that the high in Boston Monday of 63 would slump to 43 Tuesday before rising to 45 on Wednesday. Hartford CT’s Monday high of 63 was expected to fall to 46 Tuesday, and the high in Portsmouth, RI Monday of 57 was forecast to slide to 43 on Tuesday before rising to 45 on Wednesday.
The National Weather Service in southeast Massachusetts said “a cold front will bring a round of showers and isolated thunderstorms this [Monday] afternoon and early evening. Below normal temperatures continue for much of the week. Low pressure passing southeast of the region should bring rain and strong winds late Friday into Saturday…especially to southeast New England.”
“Power plants are having to buy. It looks like they have some coal units offline,” said a Northeast marketer. Prices should revert back quickly. “It’s only about a 2 day blip, and then it’s going to warm up.”
Power prices also reacted to the cold forecast adding economic incentive to purchase higher priced gas. IntercontinentalExchange reported that Tuesday peak power into the New York Independent System Operator’s Zone G Pool rose $8.19 to $53.19/MWh and day-ahead power delivered to the New England Power Pool’s Massachusetts Hub jumped $25.16 to $64.37/MWh. At the PJM West Hub next-day peak power rose $6.79 to $43.43/MWh.
Gas for delivery Tuesday at the Algonquin Citygates jumped about $2.31 to $7.13 and packages into Iroquois Waddington added $1.02 to $6.10. Gas at Tennessee Zone 6 200 L surged $2.35 to $7.07.
On Dominion gas for Tuesday was up a cent at $4.08 and on Tetco M-3 next-day parcels came in 3 cents higher at $4.33. Gas bound for New York City on Transco Zone 6 vaulted $2.40 to $6.84.
California prices fell as weather conditions were expected to offer little market stimulus. Ken Clark, meteorologist at AccuWeather.com in his weather blog said “there is a not a ton of things to talk about and all week there is nothing out of the ordinary coming. In other words no big storms, hotter or colder than normal weather of substance, or unusual conditions. It’s a pretty normal early April week.”
He said that “low pressure that came into California Sunday moves through the Great Basin Tuesday producing scattered shower or valley rain and mountain snow showers. Meanwhile behind it Tuesday is going to have more sunshine than Monday from Oregon on south through California and this dry weather continues Wednesday with Wednesday being the warmest day of the week in California. Some places from the San Joaquin Valley into the valleys of southern California will reach into the 80s Wednesday.”
At Malin next-day gas was seen at $3.84, down about 9 cents and at the PG&E Citygates gas was quoted 12 cents lower at $4.06. At the SoCal Citygates next-day deliveries were seen at $4.13, down 11 cents. At the SoCal Border parcels came in at $3.96, 10 cents lower and on El Paso S Mainline Tuesday gas was 13 cents lower at $4.02.
Futures traders are sensing the market will advance. “Prices went out at the highs of the day, and the market still feels it wants to move higher,” said a New York floor trader. “I’m thinking $4.15 to $4.20 in the next couple of days before we go back down.”
Forecasts have shifted to a warmer pattern. Commodity Weather Group in its morning 11- to 15-day outlook shows above-normal temperatures east of a sinuous line stretching from Michigan to Missouri to Mississippi. Arizona and New Mexico are expected to be above normal as well. Colder-than-normal temperatures are limited to Montana north into Alberta and Saskatchewan.
“The final surge of colder weather associated with the strong March blocking pattern appears to flush through the eastern two-thirds of the U.S. this week, making way for a new pattern to unfold by next week,” said Matt Rogers, president of the firm. “We still see some stronger cold anomalies in the coming days, with much below and some strong below normal temperatures possible, especially in the Midwest and interior Deep South. But the six-10 day sees a warmer transition with seasonal to above-normal temperatures in many areas.
“The 11-15 day looks very much like a La Nina or negative Pacific Decadal Oscillation (PDO) situation with warmth in the East and South as cooling frequents the North and Northwest. At this time, the warming mainly appears to be of weak to moderate intensity. This also splits the upper (colder) and lower (warmer) Midwest at times.”
Risk managers think now may be the time to strike for producers. “Most of the week was spent trading in a choppy two-sided range as traders digested the prior two week’s sharp rally. We did get a larger-than-anticipated draw in the weekly storage numbers, but the numbers were not enough to push the market higher,” said Mike DeVooght, president of DEVO Capital Management.
“We feel we are at the top side of this $3-4 trading range that has been established. On a trade basis, hedgers should look at locking in the summer strip for $3.90 or better. On a speculative basis, we added to our Oct. 13-Jan. 14 spread this week at -0.30.”
If Tom Saal, vice president of FC Stone INTL in Miami, is on track with his Market Profile, the market could be headed significantly lower. He is looking for spot futures to test last week’s value area at $4.094 to $3.974. “Eventually” he expects the market to test value areas at $3.831 to 3.632, $3.619 to $3.519, and $3.399 to $3.357.
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