Forecasts of moderating weekend weather, a prior-day screen plunge, a bearish storage report and the dip in industrial load that is typical of a weekend ganged up on the cash market Friday and forced prices lower by triple-digit amounts at all points. Despite the big weekend losses, prices were up overall for the week due to the hefty gains that dominated the first four days.
All trading had been long closed down by late Friday when the National Hurricane Center (NHC) sighted the last??? tropical storm of the season. Declines were fairly consistent across all geographic market areas in ranging from about $1.10 or so to nearly $2.70. After having greatly reduced deficits to first-of-month indexes through Thursday, spot prices were back to around $2 or more below index at all points Friday.
Conditions were still pretty cold along the East Coast Friday, with cities such as Philadelphia and Washington recording their first freezes of the season, according to The Weather Channel (TWC). However, temperatures were due to trend back toward mid-November norms over the weekend. A slight warm-up was already getting under way in the South Friday afternoon, TWC said. A new system moving south from Canada meant moderation would be somewhat limited in the Midwest. All three regions are predicted to see fresh cold snaps early this week.
Meanwhile, milder weather had already occupied much of the West and was expected to remain through the weekend. Other bearish factors in western markets included a high-inventory OFO by PG&E (see Transportation Notes) and a report of high linepack in its farthest three (of four) downstream segments by Kern River. On the other hand, though, Westcoast had set its imbalance tolerance range to encourage maximum packing of the pipe and not allow drafting.
But you can chalk up yet another record for the 2005 Atlantic hurricane season. Reports of the death of Tropical Depression 27 (TD27) were exaggerated, to paraphrase Mark Twain. The National Hurricane Center reported Friday afternoon that TD27’s remnants had regenerated off the coast of Honduras to become Tropical Storm Gamma. It was too early to judge Gamma’s potential effect on Gulf of Mexico (GOM) production as it moved erratically to the west-northwest about 40 miles north of Limon, Honduras. However, Florida may be in for another blow as the NHC’s five-day projection for Gamma’s path had it curving back to the northeast and approaching the southern end of the Sunshine State by noon Monday.
Since the formation of Gamma wasn’t announced by NHC until late Friday afternoon, it was unknown at press time whether any new precautionary GOM shut-ins were being initiated, but as of Friday it appeared the storm’s path would stay well out of the production area of the Gulf. It appeared the storm would come in just under the traditional Nov. 30 end of the hurricane season.
Despite December futures continuing to slide a little more than half a dollar Friday, a producer said he expects at least a modest rally Monday with colder weather returning. Market-area temperatures were moderating to “normal” for the weekend, he said, but prices rallied late on short squeezes, which often points the way for them to continue on the following trading day.
A weather forecast update that came out at noon for early December is looking more bullish for eastern markets, especially in the Appalachian area, the producer continued. He noted that although last week’s cold has drained much of the gas that was building up as pipeline linepack during the preceding warm period, “there’s still a lot of pipe congestion in South Texas,” which has often been the Gulf Coast’s weakest pricing area in recent weeks.
“We’re buying a small amount day to day,” reported a Northeast utility buyer. “We’ve been doing a little more recently to get some flexibility in sourcing gas from different points to take advantage of cheaper locations. We’ve been building up our peaking storage, trying to get that up to 100%. Our regular storage already is at 100%.”
The cold weather actually was a good thing in providing some flexibility, he added. “We were cutting a lot of gas earlier in the month when it was so warm. For today [Friday] the norm is 40 degrees and the forecasted mean is 29, so we’re about 28% below normal. But for the weekend temperatures will be a little bit above normal or just about normal.” He looks forward to temperatures getting below normal again by Thanksgiving “because we need a little bit of breathing room in storage.” Like the producer, he also noted that late prices were up from their early-morning lows, adding, “It’s just up and down.”
The National Weather Service is predicting that the Northeast winter will be about 2% colder than normal, the buyer went on. “We have a portfolio approach to the winter and haven’t changed it. We don’t try to outguess the prices because you can’t. We follow a plan that [state regulators] have approved. It’s a balanced approach. You would have to be crazy to try to guess this thing. Why did futures drop 50 cents today? Storage is in good shape but will futures be up next week with the cold weather? We’ll see.”
Because of some supply that was questionable as to whether it would come back this winter, the buyer said his company bought some gas at other points from the same producer, but “we’re paying extra for it in demand charges. It’s not cheap stuff, but you have to make sure you have the gas; that’s the priority. We have everything full even though we have some production problems on Tennessee still because of the hurricanes.” However, Tennessee volumes on an online trading service have come up lately, with about 200,000 Dth/d traded for the weekend on the 500 Line, he noted. “About 100,000 [Dth/d] was traded on the 800 Line, but that’s kind of an illiquid place anyway. My point is that the volumes are coming up. There are some restriction in Texas in Zone 0 because of all the demand for that cheaper gas.”
The buyer said his utility has about 10% of its pipeline capacity that it can’t fill “because none of the suppliers want to commit to it because they don’t feel confident about the supply. So we are sourcing that gas from other locations. Right now we are trying to get more gas coming out of Canada.”
Weekend loads dropped off “fairly significantly” for a Northeast marketer. He said the Boston citygate started out relatively firm to Henry Hub, “maybe 30-40 cents over, but some selling came out and at the end of the day it may be only 5 cents over the Hub. It’s real weak compared to where we saw in on Wednesday. It’s colder than normal up here, but it’s still relatively early in the winter and there’s no snow cover. It’s four to six degrees below seasonal, but seasonal isn’t that bad in the middle of November. It was 60 degrees two days ago here at 6 a.m., which is what we typically see in the early summer. Today it’s only about 35 degrees. Normal is 42.”
December crude was down to $56, “which is both a technical and I think psychological level,” the marketer said. “December is expiring today, so you can’t read too much into it but natgas is off almost 50 cents [at that point] or about 4% today. It’s just weak. Temperatures next week look more like what we saw Thursday, a bit colder than normal so I think we’ll see a better [Northeast citygate] spread of 50-60 cents over the Hub by next Wednesday.”
It was a meager week for Gulf of Mexico producers trying to reduce their shut-in volumes. Minerals Management Service counted 3,617.81 MMcf/d in remaining outages Friday, down only 30.20 MMcf/d from the day before. It was the fourth straight day of less than 70 MMcf/d in recovery, including a microscopic 1.35 MMcf/d on Wednesday. Since Thursday, Nov. 10 (MMS did not issue an update Nov. 11 due to observance of the Veterans Day holiday) 397.69 MMcf/d of previously shut-in production had been recovered.
Storage injections have continued into the first full week of November, which traditionally marks the beginning of withdrawal season, but stockpiles may have peaked during the week ending Nov. 11. Without mentioning specific numbers, Citigroup analyst Kyle Cooper said his initial estimation for the upcoming storage report “looks for little change in inventories.” Because of the Thanksgiving holiday, the Energy Information Administration will release its next report between noon and 12:10 EST Wednesday.
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