Physical natural gas values fell at a majority of points on Monday as early weakness in the futures added a soft tone to the market and the market forces of minimal supportive weather and ample if not burdensome storage prevailed.
A number of points in the Northeast and Midcontinent scored gains, and some California locations ticked higher as well as additional nuclear shortfalls were added to the mix. At the close of futures trading May had risen 2.6 cents to $2.152, but not before scoring fresh 10-year lows. June added 3.1 cents to $2.290. May crude oil scampered higher by $2.21 to $105.23/bbl.
“It looks like a lot of the utilities are buying and one of the nuclear plants is down,” said an eastern marketer. He noted that the Indian Point 2 nuclear plant was partly offline and “that could be putting some pressure on Iroquois Zone 2. This month it looks like the market is a little overall short. It is significantly stronger than what was expected and that caught people off guard.”
He added that the first few days of April were also expected to be a little cooler.
According to the NGI NRC Power Reactor Status Report the Entergy 951 MW Indian Point 2 nuclear reactor was operating at 30% power Monday. It was ramping up from a 28-day refueling outage. The Indian Point plant is just one of the 36 nuclear plants shown as either offline or producing at less than 100% of full power. The 36 nuclear plants’ generation represents a loss of a stout 22,236 MW out of total U.S. capacity of 100,900 MW generated from 104 facilities.
Quotes at northeast points jumped. Next-day deliveries into Algonquin Citygate added over a dime, and gas into Tennessee Zone 6 200 L rose more than 15 cents. Iroquois Waddington was just over 15 cents higher as well, and Iroquois Zone 2, added a quarter.
Southern California points were also firm on the heels of nuclear generation shortfalls. The region had been operating since January without the power from the 2,150 MW San Onofre 1 and San Onofre 2, as well as the Palo Verde 3 plant in Arizona. Add to the list the PG&E 1,073 MW Diablo Canyon 1 located southwest of San Luis Obisbo.
Nuclear outages overall are close to the maximum ever recorded for this time of year and well ahead of 2010 and 2011. At present 22,236 MW are offline, just shy of the maximum 23,384 MW and much greater than the 12,744 MW offline at this time in 2010 and the 18,461 MW in 2011.
SoCal Border was quoted almost a nickel higher and SoCal Citygate rose a few pennies. Malin fell three cents and PG&E Citygate was even.
Gulf points were more representative of the day’s declines. At the Houston Ship Channel next-day deliveries slipped just less than a dime and at the Henry Hub quotes were down a few cents more. At ANR SE next-day gas was going for about eight cents less.
In spite of the positive finish to the day, futures traders suggest it is only a matter of time before the psychologically important $2 barrier is broken. “We were down to $2.069 in the early going, and it looks like somebody is trying to push it,” said a New York floor trader. “We rallied back today, but there is the very real possibility you may see a $1 handle this week. With the holiday Friday we’ll have five days of trading compressed into four.”
He added that temperatures were in the 50s and they had gotten spoiled with March temperatures in the 70s, but “we’ll have [storage] builds going forward, and it’s just a matter of time before these guys push it lower.”
Directional traders were equally balanced in trades for the five trading days ended March 27 according to the Commitments of Traders Report of the Commodity Futures Trading Commission. After adjusting for contract size long futures and options positions at both the New York Mercantile Exchange and the IntercontinentalExchange rose by 16,167, just shy of the 16,914 contract increase in short futures and options. For the five trading days ended March 27, May futures fell 7.8 cents to $2.294.
Mike DeVooght of DEVO Capital still considers the fundamentals of the natural gas market to be negative, and although he isn’t pursuing sales for trading accounts or sales of call options for end-users, he views the purchase of put options for producers and physical market longs as a viable strategy.
“The weekly gas storage number was considered negative because of a slightly higher-than-anticipated build [57 Bcf versus expectations of 47 Bcf],” he said in a weekend note to clients. “On a trade basis we will continue to hold current positions and view any significant rally from current levels as an opportunity to do some forward sales in the summer strip. At this time and at these price levels, we are not excited about establishing new hedges here. But we purchased October $2.50 puts to cover the summer strip.” DeVooght recommends the October puts at a premium of 25 to 27 cents and will manage the options via a stack-and-liquidate strategy.
It may be too early to tell if the unusually warm March will translate into above-normal accumulations of cooling degree days (CDD) going forward, but in the near term the National Weather Service (NWS) forecasts well above-normal readings for the southeast quadrant of the country. For the week ended April 7, NWS predicts 32 CDD for the South Atlantic, or 19 above normal, and the East South Central is expected to see 28 CDD, or 23 higher than its normal tally. The West South Central is anticipated to simmer under 56 CDD, or 41 more than is average.
While the South and Southeast don’t comprise the population of more northerly climes, the U.S. in total is forecast to receive 15 CDD, or 11 above normal.
Market technicians are looking for near-term support. “With our next candidate for support just below at $2.087-1.964 we will be watching intently to see if natgas can stage a reversal,” said Brian LaRose, analyst with United-ICAP. “With the daily, weekly and monthly candlesticks showing no evidence of bottoming and the epicenter of the seasonal peaking window approaching, we are not confident this zone can hold.”
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