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Strong Northeast Paces Broad Cash Advance; Futures Rise
Physical natural gas prices nationwide surged Tuesday as a combination of factors ranging from weather conditions, to high power prices, to attractive price differentials with the screen all brought buyers to their feet. Gains were especially pronounced in the Northeast as traders noted lingering coolness and a strong basis. At the close of futures trading May had gained 3.5 cents to $2.187 and June had added 2.8 cents to $2.318. May crude oil sank $1.22 to $104.01/bbl.
There’s still a little coolness in the morning and the temperatures [Boston] in the morning are only about 44,” said an eastern marketer. “There’s still a little bit of demand in there.”
He added that balance of the month [Algonquin] is pegged at $2.55 to $2.61, and “that’s about as 52-cent basis for the rest of the month which is kind of high.”
Next-day deliveries at Algonquin Citygate surged to more than $3 with a 40-plus-cent gain, and quotes on Dracut jumped more than 30 cents. Gas into Iroquois Waddington was higher by more than 15 cents, and Tennessee Zone 6 200 L jumped almost 40 cents.
A storm moving east of the Rockies helped firm quotes at points east of the Continental Divide. “As an upper-level storm system moved into the central Rockies early Monday morning, gusty northerly winds ushered much colder air and thick clouds into the region. These clouds kept temperatures nearly steady on Monday in the lower 40s, quite the contrast in temperatures when you compare them to Saturday and Sunday’s highs,” said Matt Alto, meteorologist with AccuWeather.com. “The storm system [was] expected to very slowly track across southeast Colorado [Tuesday]. Snow [was] expected to accumulate along the Front Range and Palmer Divide.”
Next-day gas into the Cheyenne Hub gained 15 cents and deliveries on CIG added nearly 20 cents.
Western gas traders were navigating operational issues as well as cooler temperatures. “We are getting some cooler temperatures and a low OFO [operational flow order] didn’t help,” said a northern California trader. “There are some areas in the northern part of the state that will be in the high 20s to low 30s overnight. We were told not to plant any tomatoes. It looks like a one or two-day shot.”
Next-day power prices into southern California jumped. Day-ahead LMP [locational marginal price] at SP-15 jumped $3.14 to nearly $33/MWh.
Gas into the PG&E Citygate gained 15 cents and Malin was up just over a dime.
SoCal Citygate and Socal Border each added close to 15 cents.
Significant growth in gas production in the Northeast has altered flows from the Gulf Coast and Southeast. In a report Bentek Energy contended that “outbound natural gas flows to the Northeast through the Ohio Valley for March 2012 averaged 2.4 Bcf/d less than March 2011.”
It said that “continued Northeast natural gas production growth is putting significant pressure on Southeast outflows through the Ohio Valley region. The six pipeline systems that move gas through the Ohio Valley from the Southeast to major demand centers in the Northeast are flowing substantially less gas, and [y]ear-over-year natural gas throughput on these pipelines has declined 36% or 1.9 Bcf/d compared to 2011. Total Ohio Valley flows in March 2012 averaged 3 Bcf/d compared to an average of 5.4 Bcf/d posted for March 2011, a decrease of 45%.”
Futures traders see attractive opportunities in the relatively low cash quotes compared to higher futures. “I think what’s happening is the spread price is pretty wide so you are getting stronger cash in a storage play,” said Tom Saal, vice president at INTL Hencorp Futures. Henry Hub cash prices Monday settled at about $1.88, a full 27 cents less than the May futures.
Saal’s work with Market Profile leads him to believe that prices may not be set to surge higher anytime soon. “[Monday’s] profile was a trend day and what that tells me is that we’ll probably not leave this area yet. We are not going to blow out of here. It’s not going to take off,” he said.
Analysts see no intervening factors reducing the continued oversupply in the market. “We will continue to emphasize that the virtually uninterrupted price decline that has shaved more than 55% of value off of this market during the past 10 months is showing no indication of an imminent price bottom,” said Jim Ritterbusch of Ritterbusch and Associates.
In his view, there has been only a limited demand response to the current low-price environment. “Forces such as record production levels and limited demand response to an exceptionally low pricing environment remain largely intact,” he said. “In other words, supply side developments needed to balance this market and reverse a growing supply overhang remain elusive. Until strong corporate decisions designed to sharply curtail production are forthcoming, significant downside risk will remain with the nearby futures run at the $2 mark looking like a high probability by week’s end.”
Weather forecasting typically becomes more difficult during transitional periods, and this spring appears to be no exception. Commodity Weather Group in its 11- to 15-day outlook shows a ridge of above-normal temperatures centered over Wyoming and extending as far south as Texas, but at nowhere near the temperature differentials of March.
“The big picture themes [Tuesday] are still progressing cooler as the super-warm pattern fades. But the details today are a bit more challenging,” said Matt Rogers, president of the firm. “The models are at least in general agreement on closer to seasonal anomalies in the six- to 10-day period for the Midwest, East and South with some cooler spots possible. But they disagree on the pattern evolution into the 11-15. The European ensembles send more cool troughing and unsettled weather into the West that sends some modest warming into the East by mid to late period. We show a bit of that today, but we blend with the American ensembles, which are more consistent with [Monday’s] outlook. Either way, no strong temperature anomalies are expected.”
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