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Warming Trend Fuels Broad Cash Retreat; Futures Dive
Taking into account most of the country, physical natural gas market prices on average fell 18 cents in Monday’s trading, but if volatile northeast and eastern points are included, the tumble swells to 59 cents.
All market points fell. Changes in the near-term temperature outlook brought next-day sellers out in force, and many points in the East experienced declines of $7 or more. At the close February futures dropped 15.5 cents to $3.289 and March dropped 15.8 cents to $3.305. March crude oil fell 56 cents to $96.44/bbl.
Next-day weather forecasts pulled the plug on gas and power prices. “The arctic blast that gripped much of the central and eastern U.S. last week and into the weekend is on its way out and a significant warm-up is on the way to much of the eastern half of the country,” said AccuWeather.com meteorologist Brian Edwards. “A large warm-up is expected to thaw out much of Midwest to Northeast early this week,[and] the warm front that lifted through Chicago, Indianapolis, Detroit and Pittsburgh, bringing an ice storm over the weekend, will usher in the milder air.”
AccuWeather.com predicted that temperatures [would] rise into the upper 40s in Chicago and 50s in Indianapolis by Monday afternoon.
“Though some rain and fog may linger through the day on Monday, the real mild weather is expected on Tuesday as highs approach the mid-50s in the Windy City and near-record levels in Cincinnati and Indianapolis. High temperatures in NYC, Boston, and Albany will rise into the upper 50s and near 60 degrees on Wednesday. The warm weather will end across the Midwest Tuesday night as a potent cold front moves through with one more warm day expected in the East on Wednesday before the cooler air overtakes the region by Thursday,” the forecaster said.
A Northeast marketer noted, “it’s going to get cooler again, but for the next couple of days it will be warmer. Today [Monday] the high is supposed to be 32 to 33 in Boston then it gets to be 37 and Wednesday gets to be 57. We will see prices lower on Wednesday than they are today, however Tennessee is doing some maintenance and taking advantage of the warm weather.”
Falling power prices gave gas buyers little incentive to buy for power generation. IntercontinentalExchange reported that day-ahead locational marginal prices at the New England Power Pool’s Massachusetts Hub fell $58.00 to $67.67/MWh and power deliveries Tuesday to the PJM West Hub slumped $10.65 to $32.55/MWh. Peak power into the New York Independent System Operator’s Zone G delivery point Tuesday fell $36.89 to $70.61/MWh.
At the Algonquin Citygates Tuesday deliveries swan-dived $8.08 to $6.83 and gas on Tennessee Zone 6 200 L fell $8.27 to $6.64. Parcels for delivery Tuesday to Iroquois Waddington shed $7.52 to $3.83.
Gas bound for New York City on Transco Zone 6 fell $6.57 to $3.89, and next-day gas on Tetco M-3 dropped $1.38 to $3.46. Dominion gas lost 21 cents to $3.18.
Gulf prices mirrored the national declines excluding the volatile Northeast. Gas on ANR SE fell 17 cents to $3.17 and deliveries to the Henry Hub skidded 17 cents to $3.25. Transco Zone 3 lost 21 cents to $3.22.
At Midcontinent points next-day parcels also weakened. At the NGPL Midcontinent Pool gas for delivery Tuesday lost 17 cents to $3.13 and on Oklahoma Gas Transmission gas came in 17 cents lower at $3.10. On Panhandle Eastern volumes slated for Tuesday delivery dropped 19 cents to $3.08.
“A little warm snap is helping to get some longs out of the market, and we are looking for Monday’s prices to hold,” said a New York floor trader.
“I look for prices to get back up to the $3.40s, and today [Monday] was just some profit taking and we are still trading in a range.”
Near-term weather forecasts turned abruptly warmer. MDA Weather Services in its morning six- to 10-day outlook shows a broad incursion of warm air into the southwest and southern plains and retreating cold in the Northeast. “The forecast here has turned significantly warmer than expected. Instead of a cold air mass persisting across the Midwest and East throughout, it now appears much less stable, with warmth pressing eastward out of the Plains more aggressively.”
The cause of the warming is “a more abrupt return of low pressure in the Gulf of Alaska help[ing] shift the patterns in the warmer direction by increasing storminess and limiting cold air transport out of the far north. Some cold is still favored in the Northeast, but of a weaker intensity than it had previously appeared. Given the changes and model instability, confidence has fallen since Friday,” the forecaster said.
Mike DeVooght of DEVO Capital, a Colorado-based trading and risk management firm sees that “[t]he average 8-11 Bcf bigger draws we have seen over the last couple weeks has not been enough to create more urgency by those that need to buy. Fundamentally, not much has changed in the gas market. We do feel the highest probability is for the gas market to continue to trade in the $3-4 range over the next few months. We will look for rallies above $3.60 to resell this market.”
DeVooght currently advises trading and end-user accounts to stand aside the market and producers and those with exposure to lower prices to continue to hold the remainder of a short winter strip established earlier at $3.75-3.95. He also advises that if the winter months should trade above $3.75-3.95 to sell and establish a “light position.”
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