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Physical Gas Posts Broad Advance; Futures Add to Late Friday Gains
Natural gas cash prices jumped an average 15 cents Monday for Tuesday delivery as a strong screen provided a firm platform for buyers, and utilities commenced with early summer buying. The advance was widespread and nearly every point posted double-digit gains. A handful of locations were up by 20 cents or more.
At the open the newly-minted spot June contract was expected to open 9 cents higher, and from there the hits just kept coming. At the close June was higher by 16.9 cents to $4.392 and July had gained 17.3 cents to $4.441. June crude oil added $1.50 to $94.50/bbl.
“It looks like everyone is getting ready for summer to begin. May is the official start of the summer from our perspective. We consider May through October the summer, with April a shoulder month,” said a Florida utility buyer.
The buyer added that Florida Gas Transmission had completed maintenance. “You can see when they completed their work. The [Henry] Hub has been flat to [FGT] Zone 3 since about April 18.”
The buyer said he thought prices would reach a plateau in May. “Depending on units, the gas to coal switching will take place at anywhere from $4.25 to $4.45, somewhere in there. I think we will see prices bounce around in there, and once it plateaus by June or July, if it is a mild summer, prices will go down,” he predicted.
Gulf price increases were right in line with the average gains. Next-day deliveries on ANR SE were higher by 12 cents to $4.21 and on Florida Gas Transmission Zone 3 gas was seen at $4.28, about 17 cents higher. The Henry Hub came in at $4.28, up about 12 cents and on Tennessee 500 L Tuesday packages were higher by 16 cents to $4.29. On Columbia Gulf Mainline next-day gas rose 13 cents to $4.22 and at Transco Zone 3 Wednesday gas was quoted at $4.25, 13 cents higher.
According to the National Weather Service (NWS) in major energy markets heating requirements were forecast to be well below normal and cooling requirements virtually non-existent. For the week ended May 4 NWS said New England should experience 62 heating degree days (HDD) or 46 below normal and New York, New Jersey, and Pennsylvania were seen enduring just 49 HDD or 30 below normal. The Midwest from Ohio to Wisconsin was anticipated to see 38 HDD or 45 below its seasonal norm.
Cooling degree days (CDD) were seen at 0 for both New England and the Mid-Atlantic states, and the Midwest was forecast to experience 4 CDD or 2 above normal.
Eastern and Midcontinent points also experienced hefty gains. On Dominion Tuesday gas was quoted at $4.21, up 14 cents and gas into Tetco M-3 rose a stout 22 cents to $4.42. Deliveries to New York City on Transco Zone 6 posted at 18 cent rise to $4.42.
In the Midcontinent gas for Tuesday on ANR SW jumped about 17 cents to $4.13 and deliveries to the NGPL Midcontinent Pool added 15 cents to $4.12. Quotes on Oklahoma Gas Transmission added about 14 cents to $4.10 and parcels on Panhandle surged 16 cents to $4.11.
“I think there was definitely some short covering and technical buying, but the bulls are coming back,” said a New York floor trader. “I think a lot of people were looking for this market to make an adjustment to the downside, and kept shorting and shorting and then all of a sudden they said ‘I think I better cover,’ plus you have new guys coming in saying ‘this market looks good’ and you are up 16 cents.”
“$4.50 is probably the next level we will be looking at on the upside,” he said.
Addison Armstrong of Tradition Energy sees the market’s strength due to “expectations for a third consecutive below-average storage injection that further tightens the supply outlook and provides a boost to the market.”
The market’s stout advance off early session lows Friday has not gone unnoticed. “After sliding 8% from this month’s earlier 21-month high at $4.429 to $4.062 during Friday’s expiration trading, prices have rebounded as the more than 800 Bcf storage deficit from last year continues to hold gas prices well above $4.00 despite the arrival of mild temperatures across much of the country. Weather forecasts are little changed from last week, with normal to below-normal temperatures expected across Texas and the Southeast in the coming week, while normal to above-normal temps are expected across the Midwest and Northeast,” he said in a morning note to clients.
The point at which a lower rig count equates to lower production has yet to be reached. Baker Hughes reported Friday that the natural gas rig count as of April 26 slumped to 366, down 13 from the week prior and the lowest since the spring of 1999. A year ago, 613 natural gas-directed rigs were operating.
A Rocky Mountain producer reported that a leading consultant estimated dry gas production to be higher last week by 0.5 Bcf/d from the previous week to 65.1 Bcf/d and topped by levels of 65.3 Bcf on both April 21 and 22. “April’s month-to-date estimate of 64.7 Bcf/d makes this the third most productive month since it began tracking production in 2005, exceeded only by November 2012 at just below 65.1 Bcf/d and December 2012 at 64.9 Bcf/d.”
Reasons given for the lack of correlation between production and rig counts include higher productivity per well, the ability to drill multiple wells from the same drilling pad without a conventional rig move, and increased associated gas from oil plays such as the Bakken.
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