Cash markets on average eased a penny Wednesday as Midcontinent traders noted storage buying and gas volumes were being used for electric power generation. Northeast markets were weak, but Southern California points worked higher. At the close of futures trading May was unchanged at $1.951 and June had inched lower six-tenths of one cent to $2.042. May crude oil had fallen $1.53 to $102.67/bbl.
“The only play we have going here is that everyone is injecting for storage,” said a Midcontinent marketer. Some producers are selling gas for electrical generation “since the gas is so cheap. Nuclear generation is down and that is indirectly keeping the price up.”
The marketer said he would not advise producers to hedge at this point. “There is optimism that this price will not last, but my gut tells me that prices are going down even more. That’s my hunch. There is no way of knowing the future, but I think the gas price will really tank during September and October.”
Nuclear outages are running at a high level. According to the NGI NRC Power Reactor Status Report, a total of 34 units are either offline or producing at less than full capacity. The 34 nuclear plants’ generation represents a loss of 24,610 MW out of total U.S. capacity of 100,900 MW generated from 104 facilities.
Quotes on Panhandle Eastern and ANR SW were off by a penny or two. Gas delivered to Oklahoma Gas Transmission was unchanged and NGPL Mid Continent rose by a penny.
The Weather Channel (TWC) said Boston should enjoy temperatures about 15 degrees above normal on Thursday and Friday, and next-day gas prices fell. Boston’s normal high this time of year is 57, but TWC predicted a high of 70 on Thursday and Friday it was predicted to reach a toasty 75.
Gas into the Algonquin Citygate dropped close to 20 cents and deliveries to Tennessee Zone 6 200 L shed about 15 cents. Parcels into Iroquois Waddington were also quoted almost 15 cents lower.
Prices for deliveries to West Coast points firmed. Socal Citygate and SoCal Border added a couple of pennies apiece, but PG&E Citygate eased a couple of pennies
The desert Southwest may be looking at high temperatures near the century mark Thursday. “High temperatures in southern areas [West] will be mainly in the 60s and 70s, with 90s to near 100 expected in the deserts,” said TWC’s lead meteorologist Kevin Roth.
Financial traders will be turning their attention to the Thursday morning report by the Energy Information Administration on natural gas inventories. Traders and analysts will be looking for signs that production cuts and a lower rig count may finally be having an impact on the supply/demand balance.
The economics of drilling, however, may augur continued high levels of gas production even at such low prices. “We’ve looked at the break-even costs, and you will definitely see returns significantly higher for liquids rich plays, and also for oil,” said a Bentek analyst. “That allows you to continue drilling and producing gas as a byproduct even when the gas on its own might be uneconomic to produce in this market.”
Last year at this time 42 Bcf was injected into storage and the five-year average build is for 26 Bcf. Citi Futures Perspective analyst Tim Evans is looking for a build of 19 Bcf, and a Reuters survey of 27 analysts and traders revealed an average 25 Bcf with a range of 12 Bcf to 45 Bcf. Bentek calculated a 29 Bcf increase.
Short-term traders see a trading range keeping the market constrained for another month. “We could trade sideways for a while and locked in to $1.80-2.10 for the next five weeks,” said a New York floor trader. “Everyday we seem locked into a 4-cent range, we trade a little lower, and the downside is maybe $1.80. We could strengthen up to $2.10 on a rally, but I think we will sit in this area for a long, long time.”
Wednesday’s unchanged May contract performance, as well as Tuesday’s 6.5-cent loss, enabled the market to continue putting in new 10-year lows, and “weather forecasts pointed to weaker demand and higher storage injections than in Monday’s outlook, particularly for the week ended April 27,” said Citi Futures Perspective’s Tim Evans.
“There may also be some worry over Thursday’s storage report creeping into the market, given that we are seeing some estimates in the 25-35 Bcf range, more than both our model’s 19 Bcf estimate and also extending above the 26 Bcf five-year average build,” Evans said. “Any refill greater than the five-year average at this point just underscores both the magnitude of the surplus and the limited time to address the oversupply before storage capacity is reached.”
By the week of May 4 Evans sees the five-year surplus still at a plump 920 Bcf.
Tom Saal, in his work with Market Profile, correctly anticipated that the May contract would test Tuesday’s value area at $1.950-1.970. Saal didn’t say when but “typically value areas are tested the next day.”
Market Profile methodology determines an initial balance for the week during Monday and Tuesday’s trading with moves either higher or lower from there. The initial balance this week is $1.948-2.030, and the market will often trade to 50% and 100% targets. The 50% targets are $1.907 (lower) and $2.030 (higher). The 100% targets are $1.866 and $2.112.
©Copyright 2012Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.
© 2020 Natural Gas Intelligence. All rights reserved.
ISSN © 1532-1231 | ISSN © 2577-9877 |