A widespread heat wave in much of the U.S and some sections of Eastern Canada kept cash prices rising at most points Monday, but there were signs that the continuation of last week’s general rally might be in its final stages. A cooldown of the East loomed on the near-term horizon, and a massive screen plunge Tuesday was considered a good indicator of falling numbers in the physical market Tuesday.
The sizzling Northeast was posting even larger gains Monday than it had late last week (Transco Zone 6-New York City saw a spike of about 75 cents with Monday’s predicted high of 100 degrees expected to nearly reach that level again Tuesday). And a Florida citygate quote was up more than 90 cents as Florida Gas Transmission kept an Overage Alert Day in place for its fourth day Monday.
But elsewhere the market was looking a bit weaker as overall gains were shrinking at many points, and more flat to modestly lower quotes were starting to show up. Most of the new softness occurred in the Midwest and West.
There was no doubt, though, that high cooling load was still able to buoy most of the cash market. With heat advisories rampant in much of the nation (and with good chances of some being continued Tuesday), record power generation loads were expected Monday by several electric regional transmission organizations.
The Midwest Independent Transmission System Operator was able to confirm a new demand record of 131,527 MW, topping the 131,434 MW level reached on Aug. 3, 2005. The PJM Interconnection, which serves 13 states and the District of Columbia, the Electric Reliability Council of Texas (ERCOT) and the California Independent System Operator also anticipated setting new records (see story in Power Market Today). PJM said it expected to smash its previous record of 133,000 MW on July 26, 2005 by more than 4,000 MW. And ERCOT believed that it also would easily surpass its Aug. 23, 2005 record of 60,274 MW by more than 3,000 MW.
However, plunging energy futures set a high hurdle for cash numbers to vault if any firmness lasts through Tuesday. The July natural gas contract plummeted 56.4 cents Monday, and after establishing a new all-time high mark Friday, July crude oil gave back $1.73/bbl Monday as Middle East tensions seemed to be easing.
Even with the heat due to stay high in many areas for a little while longer, the trading representative for several Gulf Coast independent producers still expects prices to be softer at most if not all points Tuesday. The huge losses Monday by all of Nymex’s energy futures contracts virtually guarantee a falling cash market, she said.
Besides, although many Texas cities were forecast to hit 100 degrees or more Monday, she added, “I think we’ve got only a couple of more days left of exceptionally hot temperatures” from much of Texas into the northern market areas.
While conceding that it’s still early, the trader said she suspects that forecasters “may have blown” it with predictions of another active hurricane season. Tropical Storm Alberto showed up early and then there’s been nothing since then. She didn’t have exact figures, but recalled that by the middle of July 2005 several named storms had already come and gone. (According to National Hurricane Center archives, two tropical storms and three hurricanes had formed in the Atlantic basin by July 15, 2005.) “We certainly don’t need another hurricane season as destructive” to offshore production as the one in 2005 was, the trader said.
“It sure looks like it” that cash will be softer Tuesday, a Midcontinent/Midwest marketer said, although he didn’t see any significant faltering in late quotes, which often is an indicator of next-day price movement. After all, there would still be a lot of power generation load still around Tuesday that helped support Monday’s quotes, he commented. However, much of the East Coast should be down 10 degrees from Monday’s heights around Wednesday, he said.
Noting the big drop in crude oil futures, the marketer said he would guess that oil traders were guessing that diplomacy will be successful in cooling off recent Middle East violence.
Most Rockies points were modestly lower, flat or up by mostly small amounts despite Kern River reporting low linepack in its three farthest downstream segments Monday. Only the upstream segment was at normal levels, the pipeline said.
The National Weather Service (NWS) looks for nearly all of the serious remaining heat in the U.S. to have shifted into the West by the weekend and key northern market areas to have cooled to below normal. Only peninsular Florida and the southeast corner of Georgia are predicted to still have above normal temperatures in the East starting Saturday, NWS said in its six-to-10-day forecast posted Sunday. Meanwhile, below normal conditions are expected in an area stretching from the Northeast throughout the Midwest as far west as the western Dakotas and in a bulge to the south that barely misses Oklahoma but includes northern Arkansas and much of northern Tennessee. The West’s greatest deviations above normal temperatures will occur in the Pacific Northwest, NWS said, but the entire region should be above normal west of a line running northward from central New Mexico through central Montana.
Ron Denhardt of Winchester, MA-based Strategic Energy & Economic Research said the company projects a storage build of 53 Bcf for the week ending July 14. Noting that his “unadjusted model” predicts a 50 Bcf injection, Denhardt said, “This suggests that the storage injections may be bullish this week versus expectations. During the last month weather-adjusted storage injections have averaged 1.3 Bcf/d less than last year. If weather-adjusted storage injections continue at 1.3 Bcf/d less than last year, natural gas storage would end October at approximately 3,800 Bcf with no lost production because of hurricanes and with normal weather.” Extremely hot weather could reduce this level by 100-200 Bcf, he said, and hurricane activity similar to last year’s could reduce volumes by an additional 300 Bcf. “However, losing 100 Bcf to hurricane activity is more likely than 300 Bcf,” Denhardt added.
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