Cash market natural gas prices were mostly flat Tuesday with strength at a few Northeast locations offsetting softer California and Texas markets. California consumers were the beneficiaries of the return to service of a major pipeline from the Rockies, and weather forecasts for Wednesday called for 60s in the Northeast and Midwest, and 80s in the South and West. At the close of futures trading the June contract had risen 6.9 cents to $2.500 and July had added 6.3 cents to $2.568. June crude oil slipped 80 cents to $93.98/bbl.
Prices weakened throughout California as a major pipeline resumed service. “The Southern Trails Pipeline was down for maintenance and it was supposed to be coming back today [Tuesday],” said a Rocky Mountain producer.
“That’s a big supplier of gas to Southern California and when that line comes back prices usually go down. I think that is probably what happened.
Quotes on SoCal Citygate and Socal Border fell about a nickel and gas delivered to PG&E Citygate shed a couple of pennies.
PG&E issued a system wide OFO for Tuesday citing low inventory.
Western points delivering gas to the California market also eased. Malin was down a penny and Northwest Pipeline Wyoming fell about 2 cents. CIG Mainline was unchanged.
Prices in Texas were generally softer. Carthage and the Houston Ship Channel were lower by a couple of pennies as was Waha. Katy was reported about flat and Texas Eastern S TX added a few cents. Transco Zone 1 (Station 30) jumped nearly 15 cents as Transco reported no constraints downstream.
Eastern markets saw the day’s modest movement as a reflection of a lack of developments. “I think there will have to be some new news for something to happen,” said an eastern marketer.
“We’ve moved up overall on the fixed price, but that’s due to a lot of gas-fired generation and that’s old news.” The substitution of gas for coal may nearing the end of its run as coal is beginning to pile up. “The coal guys are saying that ‘the coal is here. It’s ours and we have to take it.'”
“If we keep using the gas instead of coal maybe we won’t have a storage problem. Usually this market turns around in six to eight months,” he said.
Prices at Northeast points advanced about in line with screen quotes. Algonquin Citygate and Iroquois Waddington each managed a gain of around a nickel. Tennessee Gas Pipeline Z6 200L added a few pennies more.
Futures traders characterized the day’s movement as a “very steady market. I couldn’t see anything I could hang my hat on as to who was buying or selling,” said a New York floor trader.
“Once we get above $2.50 that will be much more supportive for the market. I think the market is putting in a floor, but I just don’t know if you can say that convincingly just yet. Above $2.50 you will get more people to cover and put a better base in for the market.”
The combination of Monday’s nearly 8-cent retreat and Tuesday’s advance has not impaired a moderately bullish technical case. Brian LaRose, technical analyst at United-ICAP says “No change. To damage the case for an ABC advance up from $1.902, $2.373-2.331 must be broken. Sink beneath this support zone and a correction of the $1.902-2.531 advance would be anticipated near term.”
Continuation of the bullish trend requires “Clear[ing] $2.561-2.579 (1=5) before 2.373-2.331 can be broken.” If that happens “we would expect this advance to continue. Our next objective in this case: $2.770 (a=c).”
Tom Saal, vice president of INTL Hencorp Futures in Miami in his work with Market Profile sees short term movement in a steady to lower direction. Prior to the open he expected June futures to test a value area at $2.457 to $2.421. Saal is not specific in his timing, but “typically value areas are filled the next day.” He also expects a second value area at $2.328 to $2.276 to be filled soon.
Fundamental analysts don’t see an end to the short term advance either. “Although yesterday’s [Monday’s] sharp price pullback of around 3% on lack of fresh headlines would normally be viewed as a possible reversal in trend, we still see this weakening as a deserved market correction that will likely be followed by fresh highs by week’s end,” said Jim Ritterbusch of Ritterbusch and Associates.
“Thursday’s weekly EIA storage report will likely show another injection that will be downsized again against year ago and average levels, a development that will keep the dynamic of a contraction in the supply overhang ongoing. We still feel that such a dynamic deserves priority over a record absolute level of storage. Eventually, this dynamic will shift as the supply surplus stabilizes and nearby futures will become vulnerable to a sustainable price decline that could carry back to as low as the $2 area,” he said in a morning note to clients.
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