Physical natural gas prices fell about 2 cents Wednesday as traders finished up bidweek futures trading and factored in volatile near-term weather forecasts. Isolated strength was noted at some Northeast points, but for the most part the decline was widespread with all points flat or in the loss column. At the close of futures trading the expired April contract had lost 1.7 cents to $2.191 and May had eased 1.2 cents to $2.282. May crude oil dropped $1.92 to $105.41/bbl.
Gas delivered into Iroquois scored the biggest gains, up nearly 20 cents, but traders were not convinced the move had much significance. “Traders aren’t doing much on the term market and are trading spot just to get positions squared up by [futures] settlement,” said an eastern marketer. “We haven’t seen any Iroquois trades this week. It’s extremely thin and if there was any kind of shortage and someone had a position they had to take care of, that could have caused the advance.”
Quotes at Northeast points varied widely. Iroquois Zone 1 was up about 18 cents, but Algonquin Citygates rose by only a few pennies. Deliveries on Tennessee Zone 6 200 L added about a dime. Other eastern points were lower. Tetco M-3 lost a couple of cents and TransCo Zone 6 into New York fell by about a nickel.
Weather in the Northeast has been on balance mild, but volatile. “In the wake of temperatures dipping into the teens and 20s to start the week in the Northeast, another freeze will visit some areas of the mid-Atlantic Thursday night,” said Alex Sosnowski, AccuWeather.com senior meteorologist.
“In New England and in the northern mid-Atlantic coast, the cold was accompanied by wind, making the freeze quite penetrating, [and] temperatures again [Wednesday night] will drop to and below freezing over much of New England. However…winds will be substantially lower. Another freeze potential exists Thursday night into Friday morning in New England, the northern part of the mid-Atlantic and the central Great Lakes region.”
Gas buyers on Florida Gas Transmission reported a hefty premium in Zone 3 compared to other Gulf points. “There is unscheduled maintenance at Station 8 and it is not going to end until May 1,” said a Florida buyer. He added that he had transportation on Transco and could flow gas into Zone 3 if necessary.
Henry and ANR SE were seen down about a nickel and Texas Eastern E LA was off about 3 cents. Tennessee Line 500 fell a nickel.
Futures traders see something of a resilient market. “We are surprised that the market didn’t get more beat up than it did given the onerous level of storage out there. Where the heck are they putting this stuff?” said Walter Zimmermann, vice president at United-ICAP. “Normally this time of year we are looking for some kind of winter-spring rally in anticipation of summer demand. That’s always a risk this time of year that you might get a February to May rally. Looking at those rallies over time as storage levels have risen, that rally has been very vulnerable to high storage levels. The summer to fall rally has been much more resilient to growing storage.
“It’s a moot question whether the rally is built into the premium of May futures over April, and June over May. If we just roll and congest, and roll and congest, we’ll be up to $2.40. The bullish case is largely built into the market, the bearish case is not,” he said.
Both bulls and bears will have a chance Thursday to digest a storage report expected to show a continuing build in the storage surplus. Last year 7 Bcf was injected and the five-year average stands at an 8 Bcf draw. IAF Advisors calculated an increase of 48 Bcf and Citi Futures Perspective is looking for a build of 49 Bcf. Bentek Energy, utilizing its North American flow model, expects a build of 47 Bcf.
That increase is thought to exert downward pressure on prices. In surveying the supply-demand landscape, as well as Thursday’s storage report, Tim Evans of Citi Futures Perspective said he’s “seen a few additional estimates in the past day and would say that the consensus is looking similar to our own 49 Bcf forecast net injection, with more estimates in the 45-55 Bcf range than wide of that span.”
Evans noted that utilizing his own weather and storage model, “the year-on-five-year storage surplus would continue to grow, reaching 926 Bcf as of April 13. While the rate of climb in the surplus may slow down, we see the further increase in the surplus maintaining downward fundamental pressure on prices.”
He suggested holding a short position in May futures opened March 22 at $2.37 and lowering the stop protection to $2.45. His profit objective is $2.15 on the trade.
Near-term weather forecasts continue to show an above-normal temperature pattern centered over the Great Plains. Commodity Weather Group in its one- to five-day outlook showed a pod of super-above-normal temperatures in place from Oklahoma to North Dakota, but the broader above-normal readings are expected from Nevada to New Hampshire.
“While our latest maps still show a warm-dominated pattern that is not quite as warm as [Tuesday], the forecast confidence today is the same or even lower at times as the various weather models fail to maintain consistency and consistence,” said Matt Rogers, president of the firm. “This damages model credibility and increases the odds for forecast changeability in the coming days. We leaned toward the European guidance more often, especially in the 11-15 day. But if our forecast misses the mark, then it could be due to cooler indications on the American ensembles toward especially mid to late period for the Midwest and East. Progression of the MJO [Madden Julian Oscillation] pattern through the tropical Pacific could start to finally influence some stronger cooling chances.”
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