Physical natural gas prices on average for weekend and Monday delivery added a couple of pennies Friday as gains throughout a majority of the country overcame some losses in the Midwest, Great Lakes and Northeast. Seesawing weather conditions were expected to result in Monday temperatures slightly to much above normal in the Midwest.
Futures bulls received an end-of-week surprise in the form of a revised price outlook from a major investment firm, and at the close May had risen 17.8 cents to $4.125 and June was higher by 17.0 cents to $4.160. May crude oil fell 56 cents to $92.70/bbl on a disappointing employment report and slumping equity markets.
Many Gulf Coast points were almost a nickel higher. Quotes for weekend and Monday gas on ANR SE rose 4 cents to $3.95, and Tetco E LA also added a nickel to $3.96. On Columbia Gulf Mainline, prices came in at $3.96, 3 cents higher, and at the Henry Hub packages, changed hands at $3.98, 4 cents higher. At the Houston Ship Channel, weekend and Monday gas was quoted at $3.92, up 4 cents, and on Transco Zone 3 gas was seen at $3.99, 2 cents higher.
A Gulf Coast buyer keeping a close eye on the futures screen isn’t ready to lock in term supplies just yet. “I’m probably not going to lay in term gas because I think what is going to happen is that the market [Nymex] will test $4.25 to $4.50 and come back down as it seeks the coal-to-gas switching point. When it comes back down, I’ll probably put some in place,” said a Florida utility buyer.
In the Midwest, temperature forecasts calling for seasonal to above-normal readings over the weekend were enough to prompt some modest selling.
AccuWeather.com forecast that the Friday high in Chicago of 46 would rise over the weekend to 64 before settling in at 56 on Monday. The normal high in Chicago is 55. Indianapolis’ high on Friday of 56 was forecast to jump to 66 during the weekend and keep going, reaching a 69 high on Monday. St. Louis was expected to see its Friday high of 65 rise to 70 on Saturday and 73 by Monday. The seasonal high in St. Louis is 63.
On Alliance Pipeline gas for the weekend and Monday eased 3 cents to $4.05, and at the Chicago Citygates prices were seen flat at $4.04. On Northern Natural Gas, Ventura packages were down 6 cents to $3.94, and at Demarcation gas was quoted at $3.96, 3 cents lower.
Futures traders were blasted by a report from Goldman Sachs forecasting 2013 Nymex natural gas at $4.40, 65 cents higher than its previous estimate (see related story). The bank cited a tightening supply-demand equation, keying off of the fact that there was less than 1.7 Tcf of natural gas in storage by the end of March this year, compared to close to 2.5 Tcf last year.
“As a result, we now estimate only 2.0 Bcf/d of coal-to-gas switching will be required on average this year to reach a storage level by the end of the summer of around 3.65 Tcf, which will allow prices to continue to recover over the course of this year,” the Goldman report said.
The bank went on to say that higher prices would be necessary to bring production in line with demand growth by the end of the summer. “In particular, we now expect prices to average $4.50/MMBtu over the second half of this year, as a return to growing production is required to balance the market after this summer, in our view.”
“Goldman is talking their book, but we are also seeing industrial demand creeping back in,” said John Woods, of J.J.Woods and Associates. “You also have to look at the coal industry. Washington seems to be anti-coal, so if you shut down the coal, where is it going to go? Natural gas.
“On the charts everyone is looking at the same thing. My first mark is going to be $4.25, and eventually we are going to have to have a correction in this market. A 50% retracement would be down around $3.60”
Futures bulls also got some supportive news with a CME Group report that Southern Companies largest utility unit, Georgia Power, experienced an explosion and subsequent shut down of its 3,166 MW coal-fired power unit. The explosion occurred late Thursday afternoon and will likely result in an increase in natural gas-fueled power-related consumption until the unit is fixed and back on stream, it said.
Weather forecasts overnight Thursday moderated the amount of cold expected in the Midwest and Great Plains in the six- to 10-day period. MDA Weather Services in its morning forecast shows below-normal temperatures confined to north of a sinuous arc extending from Montana to Kansas to Michigan. Above-normal temperatures are expected in Southern California and the desert Southwest and also along the Eastern Seaboard from Florida to New Jersey.
“Models show a less impressive area of surface high pressure moving southward in the wake of the storm pressing at mid-period, which has scaled back the intensity of the Central U.S. cold a bit [Friday]. The general pattern is otherwise quite similar, with the warmest conditions found early on along both the East and West Coasts, and the coldest conditions found at mid-period in the Plains and western Midwest.
“The next round of warmth begins building in the Southwest at mid-period before pushing into the Central U.S. to close the period. Confidence is marginally lower due to detail issues.”
Talking about heating load in April may seem like something of a disconnect, but forecasts for the last two weeks have been calling for below-normal temperatures to make their way into various corners of the Midwest, Great Lakes and Ohio Valley. Even in April that does translate to higher heating requirements capable of impacting storage. For the week ending April 6, the National Weather Service forecasts above-normal tallies of heating degree days (HDD) in major energy markets. New England is expected to see 168 HDD or two more than normal, while New York, New Jersey and Pennsylvania are forecast to have 167 HDD, or 21 more than normal. The Midwest from Ohio to Wisconsin is predicted to experience 172 HDD, or 22 more than its seasonal accumulation.
Analysts, nonetheless, seem somewhat dismissive about near-term temperature forecasts. “With the market less concerned about shifts in the weekend temperature forecasts, we will expect a tighter Friday trading range today than is usually the case,” said Jim Ritterbusch of Ritterbusch and Associates in a morning report to clients. “But we will not rule out some overflow from the oil complex that could be posting a significant reaction to the monthly employment situation report. Looking ahead to next week, we feel that one more push to a $4 handle is likely especially if today’s Baker Hughes report indicates another strong decline in gas-directed rigs. We also feel that production remains as a latent bullish consideration as year-over-year increases will become miniscule in comparison to the substantial gains of last year that weighed on values through most of 2012.”
The Friday release of employment figures by the Labor Department showed a modest 88,000 increase in non-farm payrolls for March. Expectations were for a gain of 193,000, according to Bloomberg. The unemployment rate fell to 7.6% from 7.7%.
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