In a next-trading-day response to Wednesday’s triple-digit increase in December futures that was beefed up by rising heating demand in several market areas, swing prices for last-day-of-November flows skyrocketed Monday by triple-digit amounts themselves virtually across the board. Some points, mostly in the West, racked up increases of more than $2.
A cold front was expected to take highs in parts of the South as low as the 40s Tuesday. Meanwhile, some highs in the 30s are predicted in the Midwest and Northeast, while some Rocky Mountain locations won’t make it above the teens, according to The Weather Channel. It added that frost and freeze warnings are posted for portions of California and Arizona for early Tuesday.
It was a little belated and the wrong comparison month, but cash-screen convergence was finally happening Monday. After December futures went off the board more than $3 higher than Wednesday’s Henry Hub average, the January contract’s first day as prompt month saw it down a little more than 80 cents to around $7.83 as of mid-afternoon Monday, while Henry Hub rose well over a dollar and a half to little more than a dollar behind the January screen. Hub trading saw a huge price range nearly a dollar and a half.
The screen’s plunge of just over 80 cents is likely to greatly temper any further cash gains Tuesday or possibly even reverse the physical market into softening. A Midwest source said he expects Tuesday’s numbers to be a little bit to either side of flat.
A Northeast marketer said there was “lots of speculation today” among cash traders on the chances of last week’s surprisingly high estimate by the Energy Information Administration of a 49 Bcf storage withdrawal for the week ended Nov. 19 being revised this week. What his company was hearing is that the figure will be reduced to a 32 Bcf pull, the marketer said.
He said there was “aggressive buying interest” in the Gulf Coast Monday, more so than in the market area. The Northeast is already chilly, he noted, and can expect to get “some fairly major cold” next week. The meltdown in futures had only a small effect in pushing late cash prices lower, he said. He reported seeing a lot of power generation and utility demand for Tuesday. Liquidity has been almost nonexistent at most market-area points lately, with few deals being done, he said.
The marketer said he would “term this bidweek a dud,” because at times last week it seemed to him that some traders were more preoccupied with thinking about turkey dinners than with trading December gas. He estimated that more than 90% of bidweek deals got done last week, so other than basis deals tied to the last-day settlement, the expiration-day futures spike will have relatively little impact on December baseload prices.
A trader in the Midwest agreed that the storage report and the futures spike that it prompted was a very hot topic Monday. “There’s no way it could have been a 49 Bcf pull; I’m surprised that they [EIA] released such an impossible number,” he said. The entire gas market couldn’t have been that wrong in expecting a much lower pull, the trader commented. He reported hearing talk that the federal agency may have picked up an erroneous number from ANR Pipeline, but said the amount involved still didn’t explain the surprising report. “If it was based on error, that’s the worst part of all.”
Of a potential revision, he said, “We’re expecting it to come down to 29 Bcf.” The trader noted that a lot of projections for this week’s report “are close to zero,” which would be a very bearish development.
Last week’ report “couldn’t have occurred on a worse day,” since it was when December futures got settled and the market was going into a four-day weekend, the Midwest trader continued. He observed that a lot of people also had gotten burned by being short going into last year’s Thanksgiving weekend, during which weather forecasts were revised to colder and prices shot up after the holiday. Anybody that bought December gas on physical basis “got screwed by the settlement,” he said, adding that it will be interesting to see how the last-day settlement spike affects indexes.
The Midwest trader also agreed with the Northeast marketer’s perception that nearly all bidweek business got done prior to the holiday, saying he thinks most deals were done last Monday and Tuesday. Very little in fixed-price deals got done last Wednesday and Monday of this week, he said. The trader thinks swing prices will see a general decline throughout the month of December, but he doesn’t expect the $2-plus deficits to first-of-month November indexes that had developed last week.
Requirements by many pipelines and other storage operators for phased withdrawals over the course of the heating season mean that use of storage gas of storage will increase, weakening the demand for new production, he said. The Midwest will be experiencing “seasonable” temperatures for the next few days, he added, but mid-term forecasts are bearish.
Minerals Management Service again had no change to report Monday from its previous tally a week earlier of 648.47 MMcf/d in remaining Gulf of Mexico shut-ins.
The 2004 Atlantic hurricane season ends Tuesday without much significant to the gas market happening since Hurricane Ivan in mid-September. A disorganized low-pressure area about 1,100 miles east of Bermuda faced conditions that “are not exactly favorable,” The Weather Channel said Monday, but it had potential for further development.
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