Cash prices Wednesday fell an average of 15 cents nationally and futures weren’t far behind. Traders see the warm weather continuing with some electing to index less gas than usual, anticipating they can make up the difference with favorable purchases of spot gas.
Futures declined as well, as traders anticipated the release of storage withdrawal data Thursday, which is expected to show another plump increase in the surplus with no relief in sight. At the close of futures trading March had given up 12.1 cents to $2.382, and April was off 10.3 cents to $2.535. March crude oil fell 87 cents to $97.61/bbl.
“In the absence of any weather nationwide, I think we will see a continuation of the trend [lower],” said a Gulf Coast marketer. “I have heard people talking about the possibility of a $1 handle on natural gas but I wouldn’t venture a guess on that right now.”
Quotes at Gulf points slid. Gas into Texas Gas Zone 1 and the Henry Hub skidded just shy of 20 cents, while the Houston Ship Channel average fell just short of 15 cents.
A refreshing change to the string of lower prices was provided by New England points as temperatures were forecast to drop from unseasonable warm levels closer to seasonal norms. The National Weather Service in southeast Massachusetts said “low pressure moving east of the Great Lakes will track over northern New England [Wednesday]…pulling its trailing cold front across southern New England…Dry and seasonably cool weather will flow into southern New England [into] Thursday. High pressure will move in for the weekend. There is the possibility of another storm early next week…but confidence remains low.”
Forecaster Wunderground.com said Wednesday’s high in Boston of 58 would fall to 40 on Thursday. The normal high in Boston this time of year is 37.
Deliveries to the Algonquin Citygates gained almost 30 cents, while gas into Iroquois Waddington added nearly a dime.
A gas buyer off Florida Gas Transmission said he thought the price gain last week following announcements of production and drilling cutbacks was “a little bubble and prices will come back down to where they were.”
When queried about whether the buyer bought the company’s full complement of baseload gas for February, he said, “We held back. We have some term deals for our large customers, but for the rest we didn’t baseload much of anything. We do think that prices will continue to come off unless something happens.
“The winter has been nonexistent. It looks like it went from fall to spring and it doesn’t look like anything is going to push the market weather-wise. We buy gas off of FGT and can also take gas off of Gulfstream and some from Transco. We’ll be busy this month in the daily market, and it has been coming off. So far so good.”
The mild winter stirred talk of a warm summer. “I was talking today with someone and she said at this rate it was going to be 110 this summer, so we could have some heavier AC load,” the buyer said.
Next-day gas at Florida Gas Zone 3 dropped nearly 20 cents for Thursday delivery to end just above $2.30.
Market bears are likely to be treated to a government inventory report Thursday showing a continuation of the pervasive storage surplus. Last year at this time 187 Bcf was withdrawn from storage and the five-year average stands at a 186 Bcf pull.
For the week ended Jan. 27 estimates are for a substantially lower draw. Kyle Cooper, principal with IAF Advisors in Houston, is looking for a draw of 129 Bcf and a Reuters poll of 23 analysts and traders resulted in an average 127 Bcf decline with a range of 111 Bcf to 136 Bcf.
Followers of Market Profile were intrigued by a “nontrend day” in the futures market, which may indicate at least a temporary halt to the ongoing market decline. Tom Saal, vice president at INTL Hencorp Futures in Miami noted that the implied volatility in the March call options recently shot up to 65%, up from an average of about 48% before the recent run-up and subsequent decline in prices.
“With a nontrend day prices don’t move out of the range established in the first hour of trading,” Saal said. “Typically the longer term traders are active after the first hour of trading and they will push the market higher or lower. That didn’t happen today [in spite of the high volatility].” The lack of activity by the longer term traders and the pervasive bearish sentiment may indicate a near-term bottom, he said.
Overnight weather models turned more moderate with broad-based warmth expected throughout most of the United States. MDA Information Systems, in its 11-to-15-day outlook, predicted a vast expansion of above-normal temperatures extending from New England to West Texas, and into the Northern Plains. Only the West, Gulf Coast and Southeast are expected to have normal temperatures.
“Another major warm change was made to [Wednesday’s] outlook, resulting in widespread ‘aboves’ for much of the nation. This major shift is strongly supported by the European ensembles, which have continually trended warmer during the past 48 hours, as well as the failure of cold to effectively progress forward into the earlier periods,” the forecaster said in its morning report. “The AO [Arctic Oscillation] is still expected to be negative, [but] the blocking is set up such that the core cold continues to focus on Europe and Asia, with little risk for a major shift into North America. The EPO [Eastern Pacific Oscillation] is expected to trend toward its warmer positive phase within this time frame.”
Analysts saw Tuesday’s 21-cent price correction as a reaction to a lack of follow-through from announced production and drilling cutbacks of last week. “It was the bottom getting pulled out after a magic carpet ride on air. Prices rally steeply — on air — when we get these short-covering rallies,” said Peter Beutel, publisher of Daily Oil Hedger. “The best covering came from heavily oversold pressures. Once the carpet is in the air, it starts to ease as the covering becomes less aggressive. Then, suddenly, all the bearish reasons return and the rug gets pulled out from under the market. Prices collapse, as they did yesterday.
“Now we should get into the alternating highs and lows as prices make new lows, we get bear traps, prices rally, break recent buy-stop points, but cannot run with it. They drop again, make new lows, but then we don’t see follow-through as reliably. We get differentiating buying and selling. We have seen the part where the carpet flies through the air. Now we need to see prices return to their lows and try to build a foundation for a move sideways to higher. That also should take time. It could also require the burning of gas molecules,” he said in a report to clients.
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