Cash natural gas prices shed a dime on average Friday as steady to nominal gains at Rockies points were unable to offset falling quotes at East, Northeast and California points. Traders also cited the normal Friday reluctance to buy ahead of a weekend and weather forecasts indicated little likelihood of East and Northeast cold.
In spite of the fact that storage-wise the market has now swung to a deficit to last year, futures suffered double-digit losses. At the close of trading January had fallen 11.5 cents to $3.551 and February was down 10.9 cents to $3.578. January crude oil fell 33 cents to $85.93/bbl.
Northeast marketers noted relatively benign weather forecasts and a tendency to fulfill any unexpected weekend needs on an as-needed basis rather than committing to a three-day purchase. “It’s mild going into the weekend, and I think weather will be the determining factor going forward,” said a Houston-based New England marketer.
“I think demand will drag the market back up at some point soon. Power generators will buy depending on what they think their loads will be, but they can’t use gas for all three days. They will pay a premium for buying it intraday, but you won’t pay as much of a premium as if you bought on a Friday morning, say for gas on Sunday afternoon.
“[As a power generator], you don’t know if your plant is going to get called, and it’s harder for them to have gas that they have to resell. They are buyers and not in a selling mode.”
Northeast and East gas prices got little help from power prices. IntercontinentalExchange reported that weekend and Monday peak power at the New England Power Pool’s Massachusetts Hub fell $4.99 to $46.48/MWh and real-time peak power at the PJM western hub rose 6 cents to $46.17/MWh.
Meteorologists said colder and more seasonable air that moved into the East earlier last week would retreat Saturday into Monday. “While it may not seem like July in December, it will feel more like October or April. Temperatures will trend back to 10 to 20 degrees above normal during the period. It could get warm enough for short sleeves again in some areas with temperatures rebounding into the 50s and 60s,” said Alex Sosnowski, an AccuWeather.com meteorologist.
“The clock is ticking for additional swings of warmth for the remainder of the month. Indications are that the weather will turn somewhat colder during the middle of the second week of December. For winter weather enthusiasts and related industries, the pattern would favor opportunities for snow during the second half of the month. The transition toward colder weather could lead to a round of severe weather over parts of the Central and Eastern states during the first part of the week.”
Quotes at Algonquin Citygate for weekend and Monday gas averaged $4.56, down 46 cents, and deliveries to Tennessee Zone 6 200 L were off 42 cents to $4.68. Iroquois Waddington was down 20 cents to $4.39.
At eastern points prices also slipped. Gas on Dominion dropped 17 cents to average $3.25, and deliveries on Tetco M-3 slid 16 cents to $3.50. Gas headed for New York on Transco Zone 6 tumbled 38 cents to $3.55.
At Rockies points prices were within a couple of pennies of unchanged as AccuWeather.com meteorologists forecast that a storm system would rake through the area.
Their forecasts show a push of cold air and a moderate storm system would bring snow to the Rockies, as well as a freeze-up to part of the High Plains over the weekend. Cold air will take the plunge from north to south over part of the Great Basin, the Rockies and High Plains this weekend. Temperatures would be slashed by 20 to 40 degrees across the region, when compared to much of the past week.
“Around Denver and many other locations along the eastern slopes of the Rockies, this will bring the coldest weather of the season so far and since early last February,” said AccuWeather.com meteorologist Ken Clark.
On CIG weekend and Monday gas eased a couple of pennies to average $3.28, and at Opal gas was down a penny at $3.37. Deliveries to the Cheyenne Hub were flat at $3.36, and on Northwest Pipeline Wyoming parcels for the weekend and Monday went for $3.36, higher by 2 cents. Gas on Questar fell 2 cents to $3.26.
California points also softened. Gas at Malin averaged 4 cents lower at $3.53, and deliveries to PG&E Citygate were down by close to a nickel at $3.91. SoCal Citygate prices for weekend and Monday gas was down 11 cents to $3.68, down 10 cents, and at the SoCal Border gas was quoted at $3.52, also 10 cents lower. On El Paso S Mainline three-day packages went for $3.54, a dime lower as well.
Futures traders were content to wait for Monday weather to get a firm handle on the market’s direction. “We’ll have to wait for Monday to see what’s going to happen, and this time of year activity is light so it’s hard to make a determination, especially on a Friday,” said a New York floor trader. “I believe that the high prices of a couple of weeks ago are going to be the high prices for a while. I’m not necessarily buying into $3.50 support, but we need to test it next week. There’s a strong possibility of [sell] stops below $3.50.”
If the experience of 2011 can be considered useful, the market may now be at a critical point. Already 20% of the heating season has passed, and as Thursday’s inventory report shows, storage gas is only 33 Bcf less than the high level of supplies in place at the beginning of the precipitous price slide that took spot futures as low as $1.901.
A year ago spot futures were almost exactly where they are now. At the end of November 2011 spot futures settled at $3.550. Just a week ago January settled at $3.561.
During December 2011 storage gas declined by 381 Bcf, but by that time the race to lower prices had begun. At the end of the month February futures settled at $2.989. There may be a few more questions regarding production now that the rig count has fallen so low, but clearly the ball is in the weather/storage bulls’ court.
Addison Armstrong of Tradition Energy noted that credit rating agencies aren’t particularly bullish on the market. In a morning report he said Standard and Poor’s expects that natural gas prices are likely to remain sub $4 in 2013 unless the supply-demand balance changes in some meaningful way (see Daily GPI, Dec. 6). “Although S&P expects North American gas production will remain flat to slightly lower during 2013, it sees very few catalysts that will increase demand for gas in the coming year. ‘Although gas prices have regained some lost ground, they remain substantially lower than before the economic crisis of 2008. Natural gas is more abundant and industrial and commercial demand is stagnant,'” said S&P credit analyst Ben Tsocanos.
For the moment prices seem safe from any concerted collapse. “This market is thus far following a normal Friday pattern of price consolidation within a usual wide Thursday trading range that tends to spin off of the EIA storage release,” said Jim Ritterbusch of Ritterbusch and Associates. Thursday’s “lower close in the face of a storage withdrawal that exceeded average street ideas by around 7-8 Bcf sent off some bearish vibes that keep alive the possibility of a renewed price drop back to around this week’s lows. But such a development is highly unlikely to transpire today given the possibility of another significant shift in the short term temperature views during the upcoming weekend.”
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