The cash market obviously was harking back to the previous afternoon’s screen strength, rather than paying attention to such trivial matters as weakening weather fundamentals, in recording even larger advances Tuesday than it had Monday.
With solid double-digit increases all the way, Tuesday’s numbers rose between a little more than 20 cents and a little more than 60 cents. A large majority of the upticks were around 40 cents or greater.
But as the screen giveth, so can it also taketh away, and that is why traders anticipate significant cash softness Wednesday. After waiting until late Monday to achieve a daily gain of 26 cents after having been in negative territory during cash business that morning, Nymex’s December natural gas contract was down early and stayed down Tuesday, winding up a little more than 31 cents lower.
A couple of sources said they could see nothing other the prior-day futures uprising on which to base Tuesday’s further cash gains, especially since traders in the Northeast and Midwest had reported Monday that chilly temperatures in their region would be moderating around midweek. Also, they noted that the storage situation remains bearish, since analysts expect the season’s first withdrawal to be small — and aren’t even certain whether there was a net withdrawal at all last week.
A cold front expected in parts of the Midwest Wednesday will be relatively mild, according to The Weather Channel, which did not expect the front to drag daily highs below the 50s.
A producer said the Northeast is supposed to get highs in the mid to high 50s throughout the rest of this week, which he observed is pretty moderate for the region in mid-November. “I’m hearing that a cold December is coming up,” he went on, but said he didn’t know how much stock to put in that report. If one listens to enough forecasters, you can probably get predictions for every possible variation in next-month weather, he commented.
The market “sure got a lot of convergence between the screen and Henry Hub today,” the producer continued. As recently as Monday the gap was still well over a dollar, but it shrank to not much more than half a dollar Tuesday. Since cash “resets itself the next day” according to what the screen does, expect significant softness in cash Wednesday, he said. The Hub was being bid Tuesday afternoon around $6.20 for Thursday flow, and that indicated drop of more than 30 cents from Tuesday’s trading corresponded somewhat with the fall in December natural gas futures, he said. The producer added that the most volatile pricing lately seems to be concentrated in the Gulf Coast.
In its forecast for the Nov. 22-26 business week, which includes the Thanksgiving holidays, the National Weather Service anticipates a large area of below normal temperatures in the central U.S. that somewhat resembles a giant figure “8.” The larger bottom half of the eight stretches from the western border of Arizona to East Texas, narrowing through the Midcontinent to its narrowest point in the northeastern corner of Missouri before widening again to encompass much of the Midwest. NWS predicted above normal temperatures in Florida and southern Georgia, and also in the Pacific Northwest states, including the northern halves of California and Nevada and western Montana.
Citigroup analyst Kyle Cooper admitted to a “great deal of uncertainty” in his final estimation that the Energy Information Administration will report a storage withdrawal of 11-21 Bcf, the first of the current heating season, for the week ended Nov. 12. “However, if it is outside our range, we would be more surprised by a larger draw, rather than a smaller draw,” he continued. “Based on temperature forecasts through the end of November that indicate no substantial cold, inventories are likely to begin December above 3,200 Bcf.”
But Weather 2000 begs to differ with that “no substantial cold” remark, predicting that a polar air mass will impact the U.S. during Thanksgiving week. The New York City-based consulting firm said its forecast tables indicate that the Rockies will get hit hard with a polar wave in the short term, “but such waves will become more and more infrequent as the patterns shift east for their probable final winter resting place.” It added that in “much the same way as a ‘wave’ forms on a bed sheet that you shake, the short term will provide a very pleasant wave of mild, Indian summer temperatures across parts of the central and eastern states, ahead of the imminent polar air mass. However, unlike previous waves of colder air that have spurned lake-effect snows or record low temperatures in the Northeast, we now have blocking in place and teleconnections aligned to make this a much less transitory pattern.” It cited several factors, including “ample, chilly Canadian air,” that it expects to join forces “to make for a very harsh concluding week of November and into December for the eastern half of the nation.”
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