While Nymex screamed out of control Monday, with the January contract moving 76.7 cents higher to $6.930, the cash market largely sat back and watched in shock. Most cash points ended the day down about 20 cents in delayed response to Friday’s futures slide and the short-term forecasts in the Northeast for a little bit milder weather by Wednesday. Cash trading on Tuesday, however, almost certainly will be a different story.
“Cash gapped down on the day, but boy oh boy will it will be back up tomorrow,” said an exuberant trader. Like most observers, he was at a loss to explain the futures spike. “There’s some cold weather and a pretty massive storage withdrawal looming, but I’m going to call the screen’s run-up purely technical.”
Most futures sources attributed the spike to a continuation of the classic short squeeze, fueled in part by Nymex raising margins last week (see related story). Non-commercial traders still held a large net short position on Dec. 2 (see CFTC Commitments of Traders Report at https://intelligencepress.com/data/cot/). The significant snowfall in New York and elsewhere in the region also may have played a psychological role. But futures are now nearly 90 cents above Henry Hub cash.
It was a relatively “benign” cash trading day throughout much of the snow-covered Northeast, said a regional marketer. “We saw pretty decent buying at a 72 cents-$1 basis, depending on what point you are talking about. Prices fell 20-40 cents on average compared to Friday with New York falling on the high end of that, but there still was good buying for power generation and heating load, and there was a late rally due to the streaking Nymex,” he said.
The Northeast is expected to warm up Wednesday and Thursday, but then cool back down toward the end of the week. A similar weather pattern is expected across the Midwest. “It should be cold by the weekend again. But with this Nymex all over the place, it’s tough to get a read on what cash prices are going to do. Things are getting a little bit hairy up here on Nymex. We now have $5.40 as a base and $7.50 at the top so we have a $2 range. It’s crazy.”
Traders in the Midcontinent/Midwest were even more at a loss to explain the spiking futures prices. “The Chicago area hasn’t even gotten cold yet!” said an LDC buyer. “We have plenty of transport. We have base loaded deals. The main thing is that we have a ton of gas in storage that we can rely on. I wouldn’t have thought that prices would run up this high with the amount of storage that we have full. I’m a little concerned. I wonder what is going to happen when the East Coast gets cold and Chicago gets cold as well.”
She said Chicago started off the day near $5.80 but traders were offering gas at $6.40 by noon after Nymex catapulted skyward. Field prices in the Midcontinent started the day in the $5.40s, down quite a bit from the mid $5.50s Friday. But points in the Gulf Coast were much higher in response to demand in the Northeast. NGPL LA and Tennessee reached the $5.90s down about a quarter from Friday.
Temperatures in Chicago were still above normal Monday and should remain so for the next few days. “But then it should get down to about normal levels at the end of the week,” the utility buyer said. “By Friday the forecast looks like highs of around 29 degrees. That’s right around normal so it’s not anything that we aren’t prepared for. In fact our storage operations people are pleased that we are going to be headed back to normal temperatures because we have so much gas in our aquifers.”
California, the Rockies and the Pacific Northwest were very weak relative to the rest of the marketplace. Texas was strong but still more than $1 behind the Nymex. “It’s ridiculous to pull gas out of storage right now when the next month is so much more expensive,” said a Southwest marketer. “If anything, people are probably trying to put more gas into storage. There’s a huge incentive to store gas right now.”
A Northwest trader said with the current price situation, marketers and utilities alike are doing their best right now to inject gas. “Storage is absolutely full out here and there is no reason to take any gas out and nobody has. It’s pretty interesting. You hold your gas until next month because prices are at least 50 cents stronger next month. You have some utilities that normally don’t operate economically and have to take gas out, but they are trying to keep all that gas in storage. Everybody should be injecting right now. Some of the utilities are starting to inject.”
There certainly were no lingering effects from the two TransCanada pipeline ruptures in Alberta that initially took about 800 MMcf/d of gas off the market last week, said a Canadian marketer. “On the weekend, AECO traded pretty dang low. It was off probably $1 from Friday. They aren’t having any low linepack issues up there. Their storage is in fine shape, and it wasn’t such a huge volume [from the ruptures] that anyone would be going without gas (see Daily GPI, Dec. 5). “There seems to be plenty of it to fill that void right now. Chicago is weak. The West is weak. Only the Northeast and Nymex are strong.”
TransCanada said that a section of pipeline had been repaired over the weekend and was placed into service with reduced capacity. Only two compressor stations remain out of service, but both are expected to return later in the week.
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