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Prices Plunge Except in Some Parts of the West
After showing much strength going into the weekend, prices returned to major softening mode in most cases Monday. Dollar-plus declines reigned throughout the East and approached $6 at Chicago citygates despite a sizeable snowstorm being expected to hit the city Tuesday afternoon.
The Southwest basins and Southern California border emulated eastern markets with triple-digit price drops; however, the rest of the West tended to fall less than a dollar, and scattered points such as CIG and Stanfield recorded moderate gains.
Great weakness in the energy futures complex set the stage for cash plunges. The natural gas screen was off by half a dollar or more during morning cash business, and eventually succumbed to close the day down nearly a dollar. Meanwhile, the crude oil and heating oil contracts also took a dive as traders said fretting about potential war with Iraq appeared to ease after the Middle East nation started destroying some of its missiles over the weekend.
But it was the prospect for moderating weather in northern market areas later this week that was the key to Monday’s softness, a couple of sources said. The Northeast and Midwest could expect another day or so of freezing temperatures, then start to thaw out around midweek, they said. Much of the South had already begun warming up during the weekend.
Western Canada and much of the northern half of the West still had a good amount of weather-related demand remaining and thus were relatively firm compared with the rest of the market, a California trader said. “We’re still pretty bullish for our region at least through end of this week; we’ll re-evaluate market conditions Friday,” she continued. Very cold weather in Alberta was keeping a lot of Aeco gas at home, the trader said, and a lot of the rest continued to head for eastern markets rather than go south. That tended to lend support to numbers in Northern California and the Pacific Northwest. The PG&E citygate went out really strong because of a customer-specific OFO due to low linepack (see Transportation Notes), she said.
A Calgary-based producer agreed that low temperatures around zero (Fahrenheit) were keeping provincial demand strong. He thought Monday’s overall price plunges “might be a head-fake softening” because he looks for the Northeast and Midwest to get cold again this weekend after some moderation. He noted that with market-area prices coming back down so much while intra-Alberta numbers stay relatively strong, the spreads on some pipes were getting close to variable costs of carriage. “We might start holding some gas back from the market if we can’t beat the transport margin,” he said.
But other sources tended to concur that falling prices will continue to rule the market through at least Tuesday and likely for a while longer. As an eastern marketer said, “I’m not sensing as much panic about storage in the market as I was last week, though price ranges are still pretty big.” Power generation demand was strong in the Northeast Monday, and thus he was doing more intraday deals than next-day business, reporting the intraday prices at “more than a dollar” higher.
Possibly indicating further fuel-switching among utilities fed up with high gas prices, the New York Power Authority said Monday it is seeking bids for the purchase of 100,000 barrels of 0.3% sulfur high-pour residual fuel oil for New York Harbor delivery over the March 6-14 period.
Analysts weighed in with their storage report predictions. Thomas Driscoll of Lehman Brothers said colder than normal weather is expected to lead to a strong withdrawal of about 185 Bcf in Thursday’s report, and that will be followed by a pull of 110 bcf in the following week’s tally. Salomon Smith Barney’s Kyle Cooper said his final estimation is for a 170-180 Bcf draw, adding, “A number within this range would still be considered bullish on a temperature-adjusted basis. However, it would also continue the trend of being less bullish. A withdrawal smaller than 165 Bcf would be considered bearish on a temperature-adjusted basis, while still bullish on an absolute basis. As mentioned last week, it will take quite some time before withdrawals are likely to be considered bearish on an absolute basis.”
Observing that February 2003 set U.S. records for cold and snow, New York City-based Weather 2000 said, “With cold temperatures once again engulfing the central and eastern U.S. (yes, including the South) last month (now the fifth consecutive cold month and counting for many locations!), the statistics we’ve compiled really speak for themselves. Even comparisons to the sharp cold of 1993/1994, the long and snowy winter of 1995/1996, and the brutal winter of 1977/1978 are becoming inappropriate as we have to dig deeper back into the last century’s records to find examples of cold and snow that place 2002/2003 in proper perspective.”
The consulting firm went on to note that during the October 2002-February 2003 period, Albany, NY (94.6 inches) and Cleveland, OH (91.3 inches) both had their most snowfall ever in a winter season, while “many Mid-Atlantic hubs are only edged out in total snowfall by the blizzards of 1995/96.” It was the first time in 26 years that those five months were consecutively below normal for the following major hubs: New York, Washington, DC, Cincinnati and Memphis. And, Weather 2000 said, it was the coldest February in at least 23 years for Boston, Cincinnati, New York, Philadelphia, Baltimore and Washington. Also, it was the second coldest February in at least 14 years for Chicago, Dallas, Houston, Memphis, Oklahoma City and St. Louis.
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