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Some $1-Plus Drops Seen as Cash Losses Grow Greater
The screen slowed this week’s headlong plunge considerably Tuesday, but cash prices continued a meltdown of major proportions as winter weather support remains missing in action for the most part. Quotes fell by more than half a dollar across the board, with most declines exceeding 65 cents and a few points in the Northeast and Midcontinent/Midwest recording drops of a dollar or more.
It was astounding to a couple of sources how quickly prices were descending. They noted that as recently as last Thursday most of the Gulf Coast traded in the vicinity of $7 and most Northeast citygates were still above $8. On Tuesday the Northeast averaged less than $6 and most of the Gulf Coast was solidly under $5.50.
An East Coast utility buyer said he was in sales mode Tuesday instead of buying gas as usual. In fact, “everybody I talked to today was trying to sell gas,” he said, adding that the key word there was “trying.”
“It’s still looking like a brown Christmas” for most parts of the nation, even in the North, one trader pointed out. The major issue, he went on, is that he and many others “couldn’t understand how cash and the screen stayed so high for so long.” Among other market anomalies he cited was that while January 2005 futures were at $5.60 recently, “January 2004 was trading around $6.90.” It just didn’t make sense to have “such a tremendous spread between the two Januarys.”
Along with big price dives came large ranges between highs and lows. A western utility buyer commented, “There’s not as much action out there as I would expect, but there is plenty of volatility.”
By virtue of having the most remaining cold weather, the West tended to have the smallest price drops on Monday. But despite The Weather Channel predicting that the West “will begin a long descent into genuine winter tomorrow [Wednesday], marked initially by a heavy snowfall in the northern Sierras,” its declines of 70-90 cents Tuesday were among the day’s highest. A partial explanation came from warnings about high linepack from Kern River and Northwest (see Transportation Notes). PG&E did not issue an OFO, but its Pipe Ranger bulletin board indicated that linepack is currently nudging up against the utility’s maximum target levels and due to exceed those levels Thursday and Friday.
A marketer reported seeing forecasts that temperatures in the Arctic region “are not all that bad right now,” so January might be cold in the U.S. but not severe. Citigroup analyst Kyle Cooper had a similar report in his morning advisory, saying, “Temperature forecasts continue to call for cold air many days from now. However, our sources indicate that temperatures in the upper latitudes remain unimpressive. Thus, even if a pattern develops to send air down into the lower 48 states, it is not likely to be extreme.”
Cooper added that his final estimation for Wednesday’s storage report is for a draw of 143-153 Bcf, which compares with year-ago and five-year average withdrawals of “only 95 Bcf” and 110 Bcf respectively.
The National Weather Service forecast for next week (Dec. 29-Jan. 2), posted Tuesday, calls for above normal temperatures from the western Gulf Coast though the Midcontinent and into the Midwest and western Northeast. Except for upper New England, where more above normal readings are expected, the East Coast states will see normal conditions, NWS said. It sees below normal temperatures for virtually the entire West except for New Mexico and West Texas.
Referring to reports that much January business had already been completed before this week, a marketer said he perceives a lot of supply as still being up for grabs. Some traders may be shocked next week when they return from the Christmas holiday to do bidweek deals and find out how much there is available, he said. Of course, that bodes considerable weakness for January indexes, he added. The marketer said he already has lined up supplies through April for all but two of his company’s regular customers.
With the absence of many traders on holiday, it was hardly surprising that bidweek activity was slight Tuesday. A marketer reported hearing Michigan citygate basis of plus 10 cents for MichCon and plus 16 cents for Consumers Energy, but hadn’t done any deals yet. A utility buyer said he would try to pick up a little January gas before heading home Tuesday afternoon, adding that basis talk for Florida Gas Transmission’s Zone 2 was going at plus 1.5-4 cents.
For a Midwestern utility trader, next Monday will be the most active of bidweek. “We’ve got a short day on Wednesday, lots of people out on Friday, and options are going to expire [Friday]. A new weather forecast could change everything.”
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