The cash market was mixed again Wednesday, but although a majority of points continued to move higher, the division between gainers and losers was much closer than on Tuesday. Higher quotes derived support from a prior-day screen gain of more than 20 cents and the persistent shortfall in Gulf Coast supplies, while cooler weather already occupying or moving into the Northeast, Midwest and South provided a countervailing bearish influence.
A few flat points again were scattered among increases that ranged from about 3 cents to about 60 cents and among decreases running from a nickel to more than $2.60. Nearly all western numbers rose, while the East was home to most of the lower quotes.
October natural gas futures displayed some fireworks in expiring at an all-time high for a prompt month of $13.907, up $1.251. The contract was more than $2 higher at a peak of $14.80 near the end of trading before staging a major retreat just before settlement. Nymex’s petroleum-based products also flexed some price muscle, with crude oil for November delivery soaring by more than a dollar to $66.35/bbl and heating oil/unleaded gasoline futures also spiking (see related story).
There was no daily trading at Henry Hub for the third day in a row as operator Sabine Pipe Line maintained a systemwide force majeure declaration. Transco Station 45, Tennessee Line 500 and Trunkline-West Louisiana also continued to record no spot gas transactions Wednesday. However, Trunkline-East Louisiana and NGPL-Louisiana, which had not been quoted Monday and Tuesday, were back in action Wednesday.
The Minerals Management Service (MMS) tally of Gulf of Mexico shut-ins from Hurricanes Katrina and Rita climbed again (see related story). Based on reports from 76 companies, MMS said 8,027.30 MMcf/d was offline Wednesday, an increase of 170.65 MMcf/d from the previous day. Oil outages remained at 100% of the Gulf’s approximately 1.5 million bbl/d of normal output, the agency added.
Autumn-like temperatures had become firmly established in the Midwest Wednesday, and Northeast regions, and cold fronts were set to do the same in much of the South and Northeast by Thursday. The West is seeing some growth in hot weather at its southern end and in inland California, but remains chilly for the most part in its northern half.
Despite having high linepack in all four segments, Kern River recorded a gain of about 30 cents.
Unlike the Wednesday before Thanksgiving last year, when November 2004 futures skyrocketed by more than a dollar on expiration day due to an erroneous storage report, the most recent final-day spike was a result of the October contract going through its three-day settlement period with a nonfunctioning Henry Hub, said a Northeast marketer. People that had Gulf Coast production hedged and then saw it get shut in by Hurricane Rita had to take off any short positions they had at Nymex, he explained. As a result, October futures “found a lot of new buyers” Wednesday, he said.
The marketer also commented that “Nymex has done a pitiful job on handling the force majeure” it declared for Henry Hub-based transactions through the end of September, which it extended into October. It asked customers to use alternative delivery points that are mutually agreed upon by counterparties, “which made things very different at the Exchange,” he said. He noted that the November-March strip saw a tremendous amount of activity, with people “buying a lot of paper to get it covered.”
He found one thing curious about the Nymex force majeure that relieved parties of physical obligations to deliver at Henry Hub through the end of the month: “How did they know the Hub problem was going to last so long at that time [when the force majeure was declared last Thursday afternoon]?” He thought that took Nymex integrity down a notch.
Gulf Coast supply integrity has been impugned by the massive Katrina/Rita shut-ins, “so Northeast buyers want to get their supplies from anywhere but the South,” the marketer went on, calling it “a smart hedge on their point.” He said his company was popular for being able to bring gas into the region at Dracut, Niagara and Iroquois Zone 2. He estimated that it might be November or December before some sense of stabilization returns to the market.
He noted that a lot of onshore Texas gas was having trouble going east because of power outages hampering pipelines in Louisiana. Among all the power plants, chemical plants and refineries that have been put out of commission by the hurricanes, he estimated 2.8-3 Bcf/d of demand destruction, saying it could run as high as 4 Bcf/d.
A Midwest trader called the Nymex settlement tragic, adding, “It’s so discouraging.” She noted that the Midwest is beginning a cold snap, but didn’t expect it to result in any significant heating load. Despite the Gulf Coast outages, she reported being told by suppliers that “there’s plenty of gas out there” for October.
Analyst Kyle Cooper of Citigroup made a final estimation of a 54-64 Bcf build in storage for the week ending Sept. 23.
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