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Screen Dive Likely to Cut Post-Holiday Rally Short
With a smidgen of flatness mixed in here and there, prices were in rally mode Tuesday at all other points. Traders cautioned against reading too much into the new cash firmness, though, saying it seemed stronger than it was only in comparison to the holiday weekend’s softness. Also, a plunge just shy of 60 cents in natural gas futures Tuesday should turn cash quotes downward again Wednesday, they said.
Tuesday’s gains ran the gamut from just under a dime to about 85 cents, with all but a couple in double digits. Instances of flat quotes were noted in the Midwest, Louisiana and Western Canada.
The resumption of near-full industrial load following the usual holiday weekend slump helped support Tuesday’s prices.
Unlike the December aftermarket, in which daily prices immediately established premiums to first-of-month indexes and built them to multi-dollar amounts before finally trading at discounts to index in the final week of the month, January spot numbers are very weak in the early going. All points averaged more than half a dollar below their respective January indexes Tuesday, with a large majority trading at dollar-plus deficits. The Northeast showed the greatest relative weakness, with several citygates more than $3 under index.
Bullish traders who may have hoped that last week’s forecasts were too conservative in calling for colder temperatures will largely be disappointed. Despite a prediction of cooler weather in the Midwest around Thursday and cold fronts moving into the South and Midwest Wednesday, they will have relatively little impact, The Weather Channel said. It added that temperatures near to well above seasonal norms will continue to dominate the overall weather picture. At least the West can look forward to some relief from the severe storms it has been seeing recently, causing more than 300,000 PG&E customers to lose power at times over the weekend (see story in Power Market Today).
A 59.9-cent dive Tuesday by February natural gas futures will “absolutely” cause cash numbers to retreat Wednesday, a Calgary-based producer confidently predicted. The gas screen’s weakness was in sharp contrast to Nymex’s crude oil contract, which rose more than $2 to over $63/bbl. Traders were still concerned over a possible production cut being voted by OPEC members this month, but drawing more immediate attention Tuesday was a weekend retaliatory cutback in Russian gas supplies to Ukraine, which had a deleterious effect on downstream gas utilities in Europe who complained loudly. The move was being rescinded by Russia Tuesday, but the hint that it might use its energy resources for political purposes was worrisome to global markets.
The producer noted that Westcoast Station 2 prices were still falling way behind NIT’s (NOVA Inventory Transfer), and that situation should be very slow in improving, he said. Even the recent Pacific Northwest storms haven’t helped the Station 2 market because the precipitation is mostly liquid instead of solid, he added.
There were still quite a few people on holiday Tuesday, and that made trading “a little sloppy,” the producer continued. To him, Tuesday’s seeming price strength was almost entirely relative to Friday’s softening, since there certainly is very little weather load, he said. With little other than negative guidance from current weather conditions, the cash market will continue to take its cues from Nymex activity, which makes lower physical numbers Wednesday a near-certainty, he said.
A Northeast marketer tended to agree. He didn’t consider Tuesday’s rebounds all that major, saying they just seemed to be strong only in comparison with weekend numbers. The Northeast market area will get “a little colder” Wednesday, so there was slightly more heating load than for the weekend, but a regional warm-up is due later this week, he said.
He also concurred that the natural gas screen’s weakness was “big-time,” which should take some of the starch out of the cash market Wednesday, the marketer said. The marketer said trading was “still a little thinner than usual” because not everybody had returned from the holiday yet, but the new year’s market should get more well established as traders trickle back into offices this week.
Citigroup’s Kyle Cooper said his initial estimation of the storage report for the week ending Dec. 30 calls for a withdrawal in the mid 50s Bcf.
Having built maximum sustained winds up to nearly 65 mph since forming last Friday, Tropical Storm Zeta was about 10 mph under the threshold (74 mph or greater on the Saffir-Simpson scale) for becoming the record-setting 15th hurricane of the 2005 Atlantic season. However, it was a threat only to marine interests, being about 1,380 miles east-northeast of the northern Leeward Islands as of 5 p.m. AST Tuesday and moving slowly to the west at nearly 5 mph, the National Hurricane Center said.
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