Physical and futures markets both fell about 4 cents Monday as weather forecasts called for cooler temperatures across major energy markets. Some Northeast points shot higher, while California locations fell moderately in spite of forecasts for greater power generation requirements. At the close of futures trading September had given up 4.1 cents to $2.729 and October had retreated 4.0 cents to $2.768. September crude oil fell 14 cents to $92.73/bbl.
Next-day gas prices eased at California points in spite of the fact many areas of California have been broiled by 100 degree temperatures. Sunday was the seventh straight day of a heat wave that just keeps going, bringing oven-like temperatures to some areas of California.
“Typically they run in the 70s in Los Angeles, and when they hit the 80s there, in the interior regions they will hit in the 90s and 100s,” said an Arizona trader.
The trader said they had transportation on El Paso and Transwestern and the higher prices on those pipelines had rippled through to their market area. He added that prices on those pipelines were often driven by events on the West Coast, but “on the producing side prices are staying fairly normal, in the $2.70 to $2.80 range in the San Juan and Permian basins.”
“Regardless of what the [California] citygates are doing the producing regions are staying fairly flat. We are looking for prices to weaken once the high power loads ease,” he said.
Quotes at the SoCal Border eased only a couple of pennies and SoCal Citygate was down about a nickel. Deliveries to PG&E Citygate slid about 4 cents but gas at Malin fell approximately 7 cents. Gas on El Paso S Mainline tumbled more than a dime.
Gas on El Paso Permian shed about 8 cents.
According to meteorologist Ken Clark, “What makes this weather unusual is how long and persistent the heat has been. When you start getting departures 4, 5, 6 degrees above normal, that is significant in the summertime. [It’s the] persistent nature of the heat that’s affecting people. The gripe level is up to the rooftops right now with people griping about how hot it is.”
Clark says that the heat wave will continue for at least a few more days across California.
The California Independent System Operator forecasts that Monday’s peak power loads of 47,180 MW will make only a nominal rise to 47,448 MW Tuesday.
Northeast locations proved to be the day’s strongest movers with some points tallying double digit gains as temperatures were forecast to be above seasonal norms. AccuWeather.com said Monday’s high in Boston of 85 would hold through Tuesday before easing slightly to 81 on Wednesday. The normal high in Boston is 80. The high in Hanover, NH Monday of 86 was also forecast to remain in place through Tuesday before falling to 82 on Wednesday. The normal high in Hanover is 81.
Next-day gas on Tennessee Zone 6 200 L surged over 30 cents and deliveries to Algonquin Citygate added about 32 cents as well. Parcels into Iroquois Waddington were higher by 4 cents.
Gulf points were soft. Tennessee 500 L slipped about a nickel and Transco Station 65 was down almost 6 cents. Henry fell about 6 cents and ANR SE was down 7 cents, as was. Texas Eastern E LA.
Futures traders look for the selling momentum to ease considerably pending a consensus storage report on Thursday.
A Midwest trader said, “While our longer term downside target remains intact to the $2.50 area, we feel that attainment could require another week as a minimum and possibly to month’s end. On the upside, we feel that another run at the $3 mark has been minimized even within the context of a threatening storm system.”
Forecasters are calling for much below normal temperatures in areas of the country previously seared by temperatures well above seasonal averages. In its six- to 10-day morning outlook MDA Information Systems calls for below normal temperatures from Minnesota to Georgia with the greatest concentration centered over Illinois and Indiana.
“Another round of cooler changes were added to the forecast today, most notably during the first half over the Central US. A couple days worth of much belows are now favored through the core of the Midwest during the coming weekend,” the forecaster said.
“Thereafter, some slow moderating trends are expected, but belows will likely hang on until late as a deep trough remains overhead. A strong upper latitude blocking pattern (-NAO[North American Oscillation]/-AO[Arctic Oscillation]) combined with some ridging over the Western US is largely responsible for this outcome. The West turned warmer within this time frame. Confidence is moderate at best.”
Mike DeVooght of DEVO Capital doesn’t see the market developing any long term trends any time soon. “For the long term we feel that the gas market is in the process of making a major bottom but we have a hard time getting excited about the short term upside potential at this point. For quite some time, on a trade basis, we have been in a holding pattern. We did recommend some light short fixed price sales which would have been partially filled last week,” he said in a weekend note to clients.
At present he counsels trading accounts and end-users to stand aside. Those with exposure to lower prices he advises staying short the remainder of the summer at $3.00 to $3.20 and sell winter months should prices reach $3.75 to $3.95. He also advises holding on to the balance of a stack of October $2.50 put options designed to cover the summer strip initiated earlier at 25 to 27 cents.
In its 2 p.m. EDT report the National Hurricane Center said it following two systems. One is the remnants of Tropical Depression Seven located in the central Caribbean and it is given a low chance, 20% (up from 10%), of developing into a tropical cyclone in the next 48 hours, and the other is a broad area of low pressure 1350 miles west northwest of the Cape Verde Islands. It is also given a 20% (up from 10%) chance of development.
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