Cash prices overall were steady Thursday in large part due to physical traders getting their deals done prior to the release of the Energy Information Administration (EIA) storage figures and subsequent price volatility.
Northeast points jumped as a result of a short-duration heat wave, but major market trading points were flat to lower. The EIA reported a storage build of 88 Bcf, about what the market was expecting, but futures prices had already opened lower and the storage figures did nothing to halt a double-digit slide. At the close, July settled 16.1 cents lower at $4.023 and August finished at $4.043, 16.0 cents down. July crude oil rose 48 cents to $93.61/bbl.
Forecast temperature readings up and down the East Coast were enough to send next-day gas prices to a third day of double-digit gains. AccuWeather.com meteorologist Alex Sosnowski said, “Midsummer heat is arriving just a few days after the unofficial start of the season. After shivering cold over the Memorial Day weekend, record-challenging heat will build in some areas of the Great Lakes and the East as May draws to a close and June begins.
“Some locations will experience a 50- to 55-degree temperature rise compared to morning lows this past weekend to afternoon highs Thursday to Saturday. High temperatures near or above 90 degrees are forecast on one or more days. In some cases, temperatures will challenge or break record highs during the period from the Great Lakes to the Atlantic coast.”
AccuWeather.com forecast that Thursday’s 90 degree highs in Boston, New York, and Philadelphia would all hold into the low 90s for the Friday and Saturday as well. The normal high along the East Coast this time of year is in the 70s.
“Hot and maintenance is causing the high prices,” said a northeast marketer. “Hot is already built into the numbers [Thursday]; everything traded around the mid $6.50s Thursday, but for [Friday], $11 has already traded on Algonquin for swing-swap. Someone has said they will buy $11 gas in anticipation that will be a good deal relative to where daily gas prices come out. Algonquin is going to pig the pipe, one of the major south-to-north crossings.”
He added that Algonquin June basis was bid $2.15 at $2.20.
Next-day deliveries on Algonquin Citygate came in at $6.57, a stout 78 cents higher and Friday deliveries to Iroquois Waddington were quoted at $5.14, down 9 cents. Gas on Tennessee Zone 6 200 L was seen at $6.28, 50 cents higher.
Price changes to the south were more moderate. Deliveries on Tetco M-3 fell 8 cents to $4.33, and gas on Dominion fell 4 cents to $4.17. Gas headed for New York City on Transco Zone 6 jumped 34 cents to $4.93.
Other major market hubs were flat to showing small losses. Chicago Citygates was quoted at $4.19, down a penny, and deliveries to the Henry Hub were seen at $4.12, 3 cents lower. Gas at the PG&E Citygates fell 2 cents to $4.23. At Opal Friday deliveries came in at $3.94, 3 cents off Wednesday’s trade.
Futures traders see still softer prices following Thursday’s sharp decline. “I think we’ll get below $4 Friday but nothing crazy. I expect a range of $3.95 to $4.04, and then on Monday we should come in a little bit lower,” said a New York floor trader. “By next week, I expect we’ll trade down to $3.85, but we should see some buying come in by the $3.83 to $3.85 area. At those levels you should find some support and maybe some short-covering from those who sold at $4.20 to $4.25.”
Top analysts continue to favor the short side of the market. Mike DeVooght of DEVO Capital Management advises trading accounts to hold on to short positions established in the $4.35 area and risk 25 cents on the trade. Physical market longs and those with exposure to lower prices are advised to hold a short July-October strip at $3.75 to $3.95 and also a November-March strip in place between $4.50 to $4.60. End-users are counseled to stand aside.
“It seems that a lot of speculative money has gotten very bullish over the past couple months. We feel you can make a case that the gas market is in the healing process, but this process is going to take years not months,” he said in a note to clients. “We will very likely see manufacturing demand uptick because of the cheapness of natural gas in the U.S., and we will start to see an increase in exports, but a lot of this increase in demand is down the road, and there is plenty of capacity that can come to market in a very short period of time. On a trading basis, we will hold short positions and look for the market to work lower over the next few weeks.”
Trader estimates prior to the release of the report came in above last year’s 72 Bcf but below the five-year pace of 92 Bcf. Kyle Cooper of IAF Advisors calculates an increase of 85 Bcf, and a Reuters poll of 21 traders and analysts revealed a sample mean of 88 Bcf. Bentek Energy, utilizing its flow model, predicted an 84 Bcf injection.
Once the figures were released, sellers continued to push the market lower. “The market seems to be having a lot of trouble getting back over the $4.13 area, so if it can’t do that, maybe we’ll [continue to] take it down. There’s a lot of cooler weather coming across the country and usage is down overall,” said a New York floor trader.
Others see next week’s report as more challenging. “The 88 Bcf in net injections was a direct hit on the consensus expectations and only slightly below the 92 Bcf five-year average for the data, so basically a neutral result,” said Tim Evans of Citi Futures Perspective. “We see a broader difference of opinion over what the next set of data may show.”
Inventories now stand at 2,141 Bcf and are 664 Bcf less than last year at this time and 88 Bcf below the five-year average. In the East Region 53 Bcf was injected and in the West Region 12 Bcf was input. Inventories in the Producing Region increased by 23 Bcf.
The Producing region salt cavern storage figure increased by 4 Bcf from the previous week to 243 Bcf, while the non-salt cavern figure rose by 19 Bcf to 608 Bcf. The EIA first split Producing Region facility types in storage report footnotes in March 2012 (see Daily GPI, March 26, 2012).
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