Cash natural gas prices were unchanged on average in Friday for weekend and Monday trading. Northeast points managed gains as weather forecasts proved supportive, but Rocky Mountain points were steady to lower, and eastern points fell a couple of cents.
Analysts see the upcoming weather and storage dynamic leading to lower prices and see the risk-reward environment skewed toward the bearish camp. At the close of futures trading, June had given up 7.3 cents to $3.910 and July had fallen 7.3 cents as well to $3.960. June crude oil fell 35 cents to $96.04/bbl.
A Rocky Mountain producer was not optimistic for spring and summer natural gas pricing. “This is going to get ugly. The upcoming storage comparisons are impossible and unless the price of coal comes up, I don’t see how natural gas takes that market [power generation] back. I don’t think that has been factored into the market.
“If you have a storage deficit and it is dropping, prices come down, and if you have a storage surplus and it is dropping prices go up. We have a storage situation now where the storage deficit is going to come down. Every storage report for the next two months is going to show a lowering of the deficit versus last year and the five year average.”
That process appears to be well under way. In Thursday’s storage report, the Energy Information Administration (EIA) reported a build of 88 Bcf, well above last year’s 30 Bcf build and the five-year average increase of 69 Bcf. Last year’s deficit contracted from 795 Bcf to 737 Bcf, and the deficit to the five-year average shrank from 118 Bcf to 99 Bcf.
“There is just no way around it. Sure, you could have a short-covering rally or something based on weather, but you had a very hot summer last year, and it’s probably not going to be that hot. If you are in the gas business, you are rooting for it, though,” he said.
Rocky Mountain gas for weekend and Monday delivery was unchanged to lower. CIG Mainline was quoted at $3.71, down a penny, and at the Cheyenne Hub deliveries came in at $3.76, 2 cents lower. El Paso San Juan was seen at $3.73, unchanged, and on Northwest Pipeline Wyoming gas changed hands at $3.71, flat with Thursday trading. At Opal quotes were seen at $3.73, a penny lower, and on Questar gas came in at $3.62, 4 cents lower.
Northeast points were one of the few spots to trade higher as yet another influx of cold air was forecast to inundate Midwest and eastern markets. “A blast of chilly air will sweep from the Upper Midwest to the Mid-Atlantic and New England coasts beginning this Mother’s Day weekend, bringing a frost and freeze to some locations,” said AccuWeather.com meteorologist Alex Sosnowski. “The cold wave, which will initially be accompanied by some wind, will have people donning long sleeves and reaching for heavy jackets in many areas. At peak, temperatures will average 15 to 20 degrees below normal during the chilly outbreak.
“It is in areas where the wind diminishes Sunday night over the Midwest and Monday night in the Northeast, where the greatest potential for frost exists. In the vicinity of the central Appalachians, there is the potential for freezing temperatures both Sunday and Monday night.”
Weekend and Monday gas at the Algonquin Citygates added 7 cents to $4.23, and upstream deliveries to Iroquois Waddington fell 6 cents to $4.42. On Tennessee Zone 6 200 L gas was seen at $4.28, 9 cents higher.
On Dominion, gas was quoted at $3.96, unchanged, and on Tetco M-3 weekend and Monday parcels fell 2 cents to $4.02. Gas headed for New York on Transco Zone 6 slipped 2 cents as well to $4.02.
Other market centers were mixed. At the Chicago Citygates, weekend and Monday deliveries fell 2 cents to $4.02, but at the Henry Hub, gas fetched $3.90, 3 cents more. Deliveries to NGPL Midcontinent Pool were seen 3 cents lower at $3.80, and deliveries over the weekend and Monday to PG&E Citygates fell 2 cents to $4.01.
Market bulls did get some good news in the form of a report by oilfield services firm Baker Hughes. It said that for the week ended May 10 rigs drilling for natural gas fell four to 350, an 18-year low and down 248 from a year ago. Horizontal rigs were higher by seven to 1,099 but off the year-earlier pace by 88.
Thursday’s 88 Bcf build was just slightly higher than expectations, and according to one leading analyst, the market will now be “focus[ing] on the dynamic of additional deficit contraction during the next couple of EIA reports that will easily be pushing absolute supply levels to the back burner of trader considerations. With this in mind, we see more downside than upside market risk as we anticipate some fresh lows early next week even allowing for some potential bullish shifts in the temperature views during the upcoming weekend,” said Jim Ritterbusch of Ritterbusch and Associates in a morning note to clients.
Ritterbusch added that he expected a weak cash market to also pressure futures, and it “is likely to prompt a further drag on the front of the curve. We still see deficit contraction as associating with expanded carrying charges across the spring-winter portion of the curve. The bulk of the fund selling interest also tends to flow into nearby futures and it would appear that both technical and fundamental factors are currently aligned in favor of additional selling interest from the non-commercial entities.
“Meanwhile, [Thursday’s] data would appear to suggest stronger production pace than we had previously anticipated. All in all, this market appears destined for fresh lows until summer [electricity generation] requirements related to cooling needs come into clearer focus in a few weeks.”
Forecasters reported only a slight change to the weather outlook. WSI Corp. in its six- to 10 day morning outlook said, “[Friday’s] forecast has trended cooler over the interior West when compared to the previous forecast.”
Tom Saal, vice president at INTL FC Stone in Miami, in his work with Market Profile was looking for the market to test Thursday’s value area at $4.010 to $3.946. Saal pegs the week’s initial balance at $4.056 to $3.916 and a breakout or breakdown typically triggers a move to the 50% objective higher, $4.126 or lower, $3.846. Saal is not specific in the timing of reaching breakout or breakdown targets.
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