Cash prices ignored generally weak weather fundamentals Thursday in favor of focusing on the previous afternoon’s futures spike following the AGA storage report and expectations of serious, widespread heat next week. The result was double-digit advances at nearly all points, with the key exceptions being San Juan Basin flatness and large California declines.
With weather getting downright springlike again in the Northeast, Midwest and parts of the Southeast, some traders were incredulous at the overall strength of the swing market Thursday. “I guess the psychology of Wednesday’s screen jump was enough to boost cash today, even though the Midwest’s mild weather fundamentals would have seemed to indicate otherwise,” a marketer commented. “The market was looking for an excuse to break out of the flat to softening trend and took whatever it could get, which was Wednesday’s screen spike, whether that was justified or not.” He noted that Nymex gave back nearly half of Wednesday’s advance in Thursday activity, but most of the retreat occurred after cash trading had finished.
A couple of other sources agreed that much of the screen strength the day before carried over into Thursday for cash, but tied both sets of upticks to forecasts of greatly increased air conditioning load over a wide area next week. “I still think [Thursday’s] prices were stronger than they should have been with the Midwest cooling off as much as it is,” said a Chicago citygate trader. But he had to believe that the cash bullishness largely was due to the heat forecasts calling for above normal temperatures over virtually the entire U.S. from the Rockies eastward. “What we saw today was people packing gas into storage because they expect prices to run next week.”
A Midcontinent/Midwest marketer thought along much the same lines. Southwest Power Pool (Oklahoma, Kansas and the Texas Panhandle) electricity bids for next week went from $68/MWh to $83/MWh Thursday, he said, and the pattern was similar with the ECAR and Cinergy pools in the Midwest. The marketer thought a lot of the bullishness also derived from the prediction by meterorogist Jon Davis of Salomon Smith Barney for much more heat starting next week (see Daily GPI, July 25). Not all of the other forecasters were toeing the same line, he said, but Davis has a lot of influence.
Besides Thursday’s mostly mild weather, the cash market gains defied a high level of nuclear power generation. Only five of the operating 110 U.S. nuclear generation units monitored by the Nuclear Regulatory Commission were listed as being at zero operational levels Thursday at the “Plant Status Report” section of the NRC’s web site (https://www.nrc.gov/NRR/DAILY/psr.htm). Of the remainder, only two (Clinton 1 at 63% and Arkansas Nuclear 1 at 12%) were reported as being below 85% power levels. Units designated as being in the 96-100% range totaled 92.
California softness was attributed to hot weather staying inland while mild to cool temperatures dominated along the coast, where most of the state’s population is concentrated. Also, one trader said, it was looking less likely that PG&E would find it necessary to call a high-linepack OFO.
After getting a boost Wednesday afternoon from futures, August bidweek prices were starting to fall again along with the screen Thursday, a couple of sources said. August gas continued to sell at discounts to index in nearly all cases, one said, and Chicago basis is very weak. He said he had traded Chicago at basis of plus 1 cent Wednesday but had been able to get a minus 0.25-cent deal Thursday. “I suppose the big question for both futures and cash is: we’re going to get some heat, but will it be enough to sustain higher prices?”
Border-SoCalGas basis was down to plus 60 cents Thursday, a western trader reported.
Suppliers to the California market generally were still trying to assess the impact of FERC’s order Wednesday that they must supply detailed price and volume reports on a quarterly basis through September of next year (see Daily GPI, July 26). One marketer said it seems that such reporting would be an unproductive after-the-fact investigation, adding, “The price damage in California has already been done, and current prices there don’t seem to be such a big deal.” He also foresaw concerns about companies’ proprietary information leaking out once it got into FERC hands. In addition, he wasn’t sure if FERC had proper authority for such an order, saying he was “almost sure there will be legal challenges.”
However, another western trader was less critical about the matter. “I wouldn’t mind the extra paperwork from the FERC order if it means there’s going to be price accountability in the California market,” she said. Anyway, she doesn’t expect that much extra work “since we have to enter all deal numbers into data forms and/or spreadsheets anyway. It seems we could just pass those on to FERC.”
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