The cash market overall retreated 28 cents Wednesday, but if multi-dollar swan dives taken by Northeast and other thinly traded points are excluded, the drop comes to a more meaningful 11 cents. Nearly all points sustained sizeable losses. Midcontinent and California locations were down by double digits, but Gulf points also weakened. At the close of futures trading May had fallen 6.9 cents to $3.900 and June was off by 6.9 cents as well to $3.950. May crude oil plunged $2.74 to $94.45 on unsupportive inventory data and weak economic news.
In New England and the Northeast, falling next-day power prices prompted a commensurate decline in Thursday natural gas prices. IntercontinentalExchange (ICE) reported that power for delivery Thursday to the New York Independent System Operator’s Zone A Market Point (western New York) fell $1.27 to $40.30/MWh, and next day peak power into Zone G (eastern New York) dropped $10.18 to $50.69/MWh.
At the New England Power Pool’s Massachusetts Hub, peak power for Thursday dropped $14.75 to $48.89/MWh, and next-day power into PJM West was seen at $41.59/MWh, down $1.91, according to ICE.
The National Weather Service in suburban Philadelphia reported that much of the Mid-Atlantic and East Coast weather would be dominated by a high pressure system that would “move eastward during the day on Thursday as low pressure begins to approach from the south. However, during the daylight hours, it is expected to be dry. Clouds will increase during the afternoon. As the high moves to the east, the wind will become more southwesterly and temperatures will respond accordingly, with high temperatures five-10 degrees higher than [Wednesday].”
Deliveries to Tetco M-3 for Thursday slumped 14 cents to $4.24, and gas on Dominion shed 15 cents to $4.04. Gas headed for New York City on Transco Zone 6, however, tumbled $1.95 to $5.10.
Farther north, moderating weather also took its toll on prices. At the Algonquin Citygates, Thursday gas was quoted at $5.30, down $2.17. At Iroquois Waddington next-day deliveries slipped 92 cents to $5.26 and on Tennessee Zone 6 200 L gas for Thursday fell $1.97 to $5.36.
Wunderground.com forecast that the high Wednesday in Buffalo, NY of 39 would rise to 45 Thursday and 48 on Friday. The normal high this time of year in Buffalo is 49. Boston’s high Wednesday of 46 was expected to jump to 55 Thursday and 59 Friday. The normal high in Boston is 51. In Philadelphia the high Wednesday of 48 was forecast to surge to 55 Thursday and 64 on Friday. Normal high temperatures this time of year are 55.
Gulf locations were soft. On ANR SE, next day gas dropped 9 cents to $3.95, and gas on Columbia Gulf Mainline dropped a 11 cents to $3.97. On Tennessee 500 L, gas for Thursday delivery fell 8 cents to $3.99, and at the Henry Hub gas was quoted for Thursday delivery at $4.00, down 7 cents. On Transco Zone 3, gas came in at $4.01, also 7 cents lower, and the Houston Ship Channel was seen at $3.97, about 10 cents off Wednesday’s price.
Futures traders suggested that the day’s decline was in part fueled by the losses in crude oil. “I think we got a little bit of sympathy selling in natural gas before the [natural gas] inventory number,” a New York floor trader said.
Last year at this time 43 Bcf was injected, and the five-year average stands at a 4 Bcf build. However, this week’s expected decline in inventories will likely erase the meager 61 Bcf year-on-five-year surplus and expand the deficit to last year’s 642 Bcf.
Drew Wozniak at United-ICAP forecasts a 90 Bcf withdrawal and industry consultant Bentek Energy calculates a 94 Bcf pull. A Reuters survey shows an average 91 Bcf decline.
Weather forecasts didn’t change much overnight. Although cool temperatures are expected in the East for the remainder of the week, MDA Weather Services in its six- to 10-day outlook shows a contrasting zone of above- and much above-normal temperatures in the East and Ohio Valley with a zone of below- to much below-normal temperatures centered over South Dakota but extending as far south as the panhandle of Texas. “The forecast includes the same general look to [Tuesday], though some detail changes were necessary again. These included a colder look from the Plains to western/central Midwest again given a slight southeastward shift in the mean storm track.
“These storm fringe details remain most challenging in an otherwise well agreed upon period. Limited warmer changes were made to the Mid-Atlantic and West Coast in areas already carrying plenty of warmth. Good model agreement is helping to keep confidence at moderate to high levels despite the required detail changes.”
Tim Evans of Citi Futures Perspective said Tuesday’s slide lower was “prompted at first by a morning weather forecast that looked less supportive than a day ago, but failing to rebound when the midday update proved slightly cooler. In terms of the larger pattern, the market has been simply chopping sideways within a relatively narrow band of the past two weeks, apparently marking time before the next decisive fundamental push comes along.”
That fundamental development could come in Thursday’s inventory report when another hefty draw is expected to be disclosed. Evans is looking for a pull of 83 Bcf. Despite the choppy nature of the market, Evans recommends entering the market on the sell side via a sell-stop at $3.83 in the May contract. Should the order get filled, he recommends a stop-loss of $4.08.
Tom Saal, vice president at INTL FC Stone in Miami, in his work with Market Profile was looking for the May contract to test Tuesday’s value area at $3.979-3.951 before “eventually” testing $3.847-3.795. His calculations also show the week’s initial balance at $4.044 to $3.943; should prices break out of the initial balance the first upside target is $4.095 and the downside objective is $3.893.
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