Cash natural gas fell 11 cents overall on average Wednesday as the screen continued weak and there was no hint that winter weather would be enough to make a significant dent in storage. Northeast points were particularly hard hit but the Midcontinent and East weakened as well. At the close of trading January futures had fallen3.0 cents to $3.382 and February had dropped 2.9 cents to $3.412. January crude oil added 98 cents to $86.77/bbl.
The forecast of a cold incursion bringing chilly air from North Dakota to North Texas in the next several days was small comfort to Midcontinent producers.
“That helped a little bit [with prices], but there is still a lot of supply. People are coming to me with their gas, so I don’t know what is going on,” an Oklahoma producer said. “All restrictions on OGT [Oklahoma Gas Transmission] have opened up, but NGPL may have some constraints into Chicago. The market seems pretty oversupplied right now. I think this is a good place to put on some short hedges for a producer.” Thursday’s Energy Information Administration (EIA) expected report of a thin withdrawal “may have spooked the market and that is why Nymex went down,” he added.
“The same storm aiming to bring cold rain and snow to Southern California and Arizona this week will swing toward Midwest this weekend (Dec. 15-16) with a wide variety of precipitation [and] the storm will bring not only needed moisture, but also travel problems ranging from minor inconveniences to dangerous conditions,” said Alex Sosnowski, AccuWeather;com meteorologist. “How extensive the area of heavy snow, ice and drenching rain is will depend on the track and strength of the storm. Snowfall from the storm could overlap part of the area that was hit with half a foot to a foot and a half of snow this past weekend (Dec. 8-10).”
Quotes on NGPL Midcontinent for Thursday gas were down by 6 cents to $3.23 and gas on ANR SW fell 9 cents to $3.23. On NGPL Amarillo gas for Thursday dropped six cents to $3.27 and on OGT buyers paid about 11 cents less at $3.17. On Panhandle Eastern parcels for Thursday dropped 11 cents to $3.16.
More than $1.00 losses were posted on some New England pipes. At Algonquin Citygate gas for Thursday delivery tumbled $1.03 to $5.81 and deliveries to Iroquois Waddington slipped 37 cents to $4.51. On Tennessee Zone 6 200 L next day gas swan-dived $1.57 to $5.39.
East Coast points were forecast to enjoy above-normal temperatures. Forecaster Wunderground.com said the Wednesday high in Boston of 43 would be 45 on Thursday and 48 on Friday. The normal high in Boston this time of year is 42. New York City’s Wednesday high of 50 was expected to hold Thursday before rising to 52 on Friday. The seasonal high in New York is 44.
Eastern points were also soft. Next-day gas on Dominion eased 6 cents to $3.30 and on Tetco M-3 Thursday parcels came in 8 cents lower at $3.62. Gas bound for New York on Transco Zone 6 slipped three pennies to $4.12.
Futures traders weren’t all doom and gloom following the January contract’s fifth consecutive loss. “I do think there is some scale-down buying off the day’s decline,” said a New York floor trader. “In anticipation of a pop higher off lower levels there is scale-down buying that keeps the market from free-falling. In turn it [rate of descent] should slow up unless weather patterns seem to indicate there will be no winter. At some point we’ll find a bottom and profit taking [on short sales] that will take it back up to the $3.50 area.”
Thursday’s EIA inventory report is anticipated to show a thin withdrawal putting still more market pressure to the sell side. Last year a robust 79 Bcf was pulled from storage and the five-year average stands at 113 Bcf. A Reuters poll of 26 traders and analysts showed an average 4 Bcf withdrawal with a range of a 15 Bcf pull to a 7 Bcf build. Citi Futures Perspective is looking for a draw of just 7 Bcf and Bentek Energy’s North American flow model predicts a decline of 3 Bcf.
Shortly after noon Tuesday a major pipeline explosion rocked the Columbia Gas Transmission Lanham Compressor station near Sissonville, WV. No injuries were reported, and market observers saw no immediate impact at the time (see related story).
Wednesday’s overall broad decline showed little trader concern with gas supply even in often constrained eastern markets.
Tim Evans of Citi Futures Perspective said the EIA’s Short Term Energy Outlook shows “the year-on-year increase in residential demand (mostly heating) of 1.47 Bcf/d (10.3%) rivals the 1.51 Bcf/d (8.4%) year-on-year increase in power sector demand in market importance [see Daily GPI, Dec. 12]. We see this as a likely ongoing theme, with power sector demand growth unlikely to match 2012 in the new year and heating demand becoming the more critical factor. Weather-driven price volatility — rallies on cold snaps and declines in warm spells — will likely be the result, in our view.”
Evans calculates a 7 Bcf withdrawal for Thursday’s storage report, but by Dec. 28 the present year-on-five-year surplus grows from its current 168 Bcf to 368 Bcf. “The rising surplus remains consistent with the idea of a further decline in price, with the $3.25 area representing a more conservative valuation in our view,” he said.
WSI Corp. in its 11- to 15-day forecast shows no major changes. It currently predicts normal temperatures in a wide fairway extending from New England and Alabama on the east to Montana and Southern California on the west. Outside the fairway below-normal temperatures are expected.
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