The overall cash market rose on average about 4 cents in Tuesday’s trading with Northeast points showing the greatest gains and eastern points adding a couple of pennies. Weather forecasts call for an enduring two-week period of above normal temperatures throughout the nation’s mid-section, and at the close of futures trading the about-to-expire July contract rose 7.3 cents to $2.767 and August added 7.3 cents as well to $2.807. August crude oil rose 15 cents to $79.36/bbl.
Eastern marketers were kept busy with a wide range of issues and trying to make deals at the same time. “The spreads have been pretty wide at a lot of different points, it’s been hot, and there have been some operational restrictions. The market has been pretty funky, and we expect that to continue to the end of the month,” said a Northeast marketer.
He added that the Algonquin-Nymex spread “should be just as wide if not wider. We are starting to get involved with bid week and it is fun stuff.”
Brokers pegged the July Algonquin basis late in the day at a stout 61 1/2 cents bid at 62 1/2 cents offered.
Next day quotes at Northeast points soared. Next day deliveries into Iroquois Waddington rose almost a dime, but gas into Algonquin Citygate surged about 60 cents. Quotes on Tennessee Zone 6 200 L were nearly 70 cents higher.
Other eastern points were not as robust. Transco Zone 6 New York and Tetco M-3 each added a few pennies.
Great Lakes marketers were struggling with how high a percentage of their requirements for July would be priced at index. One marketer said he was going greater than 50% but lamented that it was “too high.”
The Michigan marketer added that discerning next months requirements was going to be tricky, for one of their large accounts, a hospital actually used less gas this month than a year ago.
Quotes throughout the Great Lakes and Midwest were steady to slightly higher. Next day gas on Alliance and Northern Natural Gas Ventura were nearly flat, as were deliveries to Chicago Citygates. Deliveries to Michcon were also close to unchanged, and on Consumers Wednesday parcels added just a couple of pennies.
Next-day gas at California locations eased. PG&E Citygate and SoCal Border were quoted about 2 cents lower, and SoCal Citygate was seen down almost a nickel.
Curiously, electrical loads are expected to increase. CAISO (California Independent System Operator) forecast Wednesday’s peak load would rise to 34,008 MW from Tuesday’s forecast peak of 32,364 MW.
Futures traders were optimistic following the day’s gains. “I think we have room to $3, possibly $3.05 in the August contract,” said a Nymex floor trader. “It’s been a little cooler here, but I think next week we’ll see $3 and then come back off from there.”
Tuesday was options expiration and “it looks like traders wanted to pin the market above $2.75. I think Wednesday we’ll come in a little bit higher and July should trade between $2.75 and $2.83 before it goes off the board.”
The next-day CAISO forecast notwithstanding, high power generation demand looks like it is going to be around for a while. MDA Information Systems forecasts a very large ridge of above- to much-above-normal temperatures stretching from Nevada to New York and Minnesota to Texas. Much-above-normal temperatures are centered over Kansas and Nebraska. The pattern of widespread heat is expected to be in place for the next 15 days.
In its six- to 10-day outlook it said, “Some small tweaks were made here and there, but the net pattern remains quite similar to [Monday] in showing a broad coverage of stronger than normal heat. At this point the intensity is forecast to drop off slightly from the peak late in the prior [one- to five-day] period, but with a strong upper ridge overhead of a region of intensifying drought, the Central U.S. is likely to see ongoing extreme temps.
“The Mid-Atlantic will remain plenty hot as well, though some variability should cool New England by the second half of the period. The West Coast remains most likely to see persistent seasonal to cool conditions.”
Analysts see the near-term heat as a stronger market driver than the still ponderous storage surplus. “[A]s we prioritize various forces at work in this complex, we are still honing in on a near-term weather outlook that features generally hot and dry conditions across a broad swath of the U.S. This implied uptick in [power generation] demand is expected to perpetuate the dynamic of a contraction in the supply surplus,” said Jim Ritterbusch of Ritterbusch and Associates. “The high absolute level of storage is being pushed to the background as a driver of natural gas pricing and the possibility of storage congestion by early fall is being diminished even on a regionalized basis. Meanwhile, the market is being forced to maintain a significant amount of storm premium at this early stage of the hurricane season.”
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