Cash market trading yielded a decline of 2 cents overall Friday, but if the sizable losses on Tennessee and Algonquin are factored out, the physical market scored a 2-cent advance.
Gains were widespread, and only a handful of points slid into the loss column. Gulf points were firm. At the close of futures trading April had fallen 3.0 cents to $3.456 and May had shed 2.7 cents to $3.504. April crude oil retreated $1.37 to $90.68/bbl.
Gulf buyers had to put up with pipeline maintenance distorting prices. The nominal differentials on Florida Gas Transmission (FGT) have expanded because of compressor work. “They are doing work on Compressor Station 9 and Compressor Station 6, and that has caused prices to get out of their normal alignments,” said a Florida utility buyer.
Prices on FGT Zone 3 will typically trade a few pennies above the Henry Hub, but that differential has expanded to nearly 20 cents. “Compressor Station 9 is before Zone 3, so people can buy gas outside of the allocations in Zone 3. The maintenance will be all the way through March, so I wouldn’t expect that spread to contract anytime soon.”
The buyer said the recent strength in the cash market due to cold weather has enabled his company to work down its storage surplus. “We’ve been drawing it down for our own use but haven’t been selling it. We should be where we want to by the end of March.”
Gas for weekend and Monday delivery on FGT Z3 added 6 cents to $3.72, and gas at the Henry Hub added 6 cents as well to $3.54. On Tennessee 500 L gas was seen at $3.53, up 4 cents, and on ANR SE quotes were at $3.50, higher by a couple of pennies. Columbia Gas Mainline came in at $3.52, up 3 cents, and Texas Eastern E LA was quoted at $3.47, up 3 cents.
At eastern points weekend and Monday prices scored sharp declines as well as nominal gains as weather forecasters were more concerned about upcoming storms than frigid temperatures.
Forecaster Wunderground.com predicted the Friday high in Boston of 43 would hold Saturday before rising to 45 on Monday. The seasonal high in Boston is 42. In Hartford, CT, a Friday high of 50 was expected to slide to 45 on Saturday and also on Monday. The normal high in Hartford is 42 also.
Meteorologist Elliot Abrams of AccuWeather.com said in a Friday blog that “with a storm well of the East Coast and a large high-pressure area to the west, the weekend will feature cold and primarily dry weather in the Northeast. There will be a lot of cloudiness downwind from the Lakes and in the mountains, a little less in the I-95 corridor.
“There will be patches of snow showers (and some rain showers in the lowest elevations). As we go into next week, a storm will be forming in the middle of the country, and it could turn into a major storm on the East Coast. There has been model wobble with the storm so far…one day it looks farther south, then the next day farther north.”
Algonquin Citygate was seen at $4.97, off $1.47, and on Tennessee Zone 6 200 L weekend and Monday gas came in at $4.98, down $1.35. Deliveries to Iroquois Waddington were quoted at $4.61, 9 cents higher.
In the Mid-Atlantic, prices generally rose. Wunderground.com forecast mostly seasonal temperatures through Monday. New York’s Friday high of 50 was anticipated to ease to 48 Saturday and 45 Monday, the normal high. Philadelphia’s high Friday of 50 was seen falling to 45 Saturday and 41 on Monday. The normal high in Philadelphia at this time of year is 45.
On Tetco M-3 weekend and Monday gas added 7 cents to $3.79, and on Dominion gas was quoted at $3.61, up 7 cents also. Gas into New York City on Transco Zone 6 was flat at $3.87.
Futures trading was lackluster. “We only had range of 8 cents and volume was moderate,” said a New York floor trader. “I don’t know why we are at these levels, but there has been some weather to the west that has had an influence. On the East Coast we have had mild weather.”
If prices are going to move higher, the trader is looking for a breakout “well above $3.50, but I don’t see what would drive it. If I were going to sell, I would put a sell stop below $3.40 and look to take maybe a dime out of the market. Longer term, traders are likely to put a stop under $3.40 but trade for as much as 50 cents. I could easily see this market trading in the high $2 range.”
Forecasts turned a little warmer in the near term. Commodity Weather Group in its six- to 10-day forecast said, “The models overnight trended to support a bigger risk for an East Coast late-season storm toward the middle of next week. While there does not appear to be a lot of cold air to work with, the storm’s dynamics seem strong enough to generate frozen precipitation concerns, perhaps in the interior Mid-Atlantic and even toward New York City possibly.
“This could slow next week’s warming slightly, but otherwise, progression of the forecast warms the Midwest a bit more today. The latest 11-15 day thinking still brings another cold push into the middle of the nation, but it is again slightly slower getting to the East Coast. Also, the Southern impact of the cold push looks weaker compared to yesterday. While the cold is intermittent and less strong, we still do not see any big sustained warm-ups coming yet either.”
Analysts see a firm tone to the market. “Although yesterday’s EIA [Energy Information Administration] storage report missed average ideas by only about 5 Bcf, price response was magnified by an apparent desire on the part of the funds to further reduce bearish holdings. The surplus against five-year average levels has shrunk to 16% and is unlikely to show as much expansion during March as we had previously expected,” said Jim Ritterbusch of Ritterbusch and Associates.
The production dynamic is also beginning to favor the bulls. “[M]onthly updates out of the EIA also tilted in a bullish direction as December production fell more than expected in relation to a downward revised November pace,” he said. “As a result, demand across the entirety of 2012 is showing a preliminary year over year upswing of 4.4 %, a significantly lower increase than widely perceived last year. But we would note that the production increase was roughly equivalent to year over year demand gains that spun primarily off of coal to gas substitution that popped EG [electrical generation] offtake by around 20%. All in all, we are seeing some tightening in the natural gas balances capable of keeping nearby futures prices elevated despite the fact that the temperature factor will be virtually irrelevant by the time the nearby April futures expire toward month’s end.”
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