Physical natural gas cash prices fell 3 cents on average Wednesday, but that included some hefty drops at northeastern points, as weather-related demand plummeted. If those are taken out of the mix, the overall market actually added a couple of pennies on average. Gulf points were particularly strong, and New England was particularly weak. Spot futures managed to settle well above $4 and posted an 18-month high. At settlement May was $4.068, up 7.7 cents and June added 7.7 cents as well to $4.108. May crude oil gained 24 cents to $96.58/bbl.
“It’s just normal weather, and normal weather means not a lot of gas flow this time of year,” said a Houston-based Northeast marketer. “With no demand, Algonquin trades around $4, and typically the [low] threshold for gas to move north on Algonquin is Tetco M-3. It takes about 15 cents to move it from there and that’s a rough idea of the minimum price needed.
“People are long gas from the beginning of the month, and a lot of today’s decline is people who bought for the colder days and bought for the rest of the month.”
The marketer surmised that April bid week might show some unusual twists. As opposed to expectations of milder weather prompting some buyers to scale back bid week volumes, “demand actually increased from out customers. Retail loads may have gone down, but now we have storage injections. We actually bought a little more [index] gas in some cases.”
Falling next-day power prices also worked to drag spot gas prices lower. IntercontinentalExchange reported that at the New York Independent System Operators Zone G market point, peak Thursday power fell $8.58 to $45.00/MWh and at the New England Power Pool’s Massachusetts Hub, peak day-ahead locational marginal prices dropped $6.19 to $43.71/MWh. At the PJM West Hub next-day peak power slid $1.71 to $42.28/MWh.
Quotes at Algonquin Citygates tumbled 74 cents to $4.70, and at Iroquois Waddington next-day deliveries came in 52 cents lower at $4.71. Buyers on Tennessee Zone 6 200 L were able to buy gas $1.05 less than Tuesday at $4.64. Delivery points in the Mid-Atlantic also weakened. Gas at Tetco M-3 dropped 6 cents to $4.18 and deliveries on Dominion were unchanged at $4.00. Gas into New York City on Transco Zone 6 fell 5 cents to $4.24.
Many Gulf points posted double-digit gains. On Columbia Gulf Mainline next day gas was seen at $4.05, up 8 cents, and at the Henry Hub gas for Thursday delivery added 9 cents to $4.08. At Katy, gas was quoted 11 cents higher at $4.03 and at the Houston Ship Channel, next-day packages were also 11 cents higher at $4.03. Transco Zone 3 was seen 7 cents higher at $4.05 and on Tennessee 500 L gas for Thursday was $4.03, a nickel higher.
Other market centers saw more nominal gains. Chicago Citygate quotes were 2 cents higher at $4.21, and NGPL Midcontinent Pool was seen at $3.97, up 3 cents. On El Paso Permian packages were 2 cents higher at $3.89, and at Opal Thursday gas was $3.93, up 2 cents.
Futures traders see an extended market. “What we are looking at is spot month buying at over 130,000 contracts and the next month roughly 30,000 to 40,000 contracts. This is basically a spot month dynamic. What you are doing is pushing all fundamentals to the side,” said John Woods of J.J. Woods and Associates.
“Up around here you are in dangerous territory. You have spring just around the corner. In the dead of winter we had gas at a low of $3.05, and realistically we have had a 35% rally, and I see this market going up to $4.18 and change, but fundamentally there is a lot of gas out there.”
Weather forecasts overnight remained on the cool side. Commodity Weather Group (CWG) in its morning 11- to 15-day outlook showed a ridge of below-normal temperatures from eastern Montana to Mississippi to western New York. Above-normal temperatures are seen within a fairway from Oregon to Arizona but excluding most of California. “The various models over the past 24 hours have trended colder with the event next week, especially in the Midwest and toward the South,” said CWG President Matt Rogers.
“There are concerns that we could yet see stronger anomalies than our current outlook as a lot of key blocking features (Arctic, North Atlantic) hang on longer than originally expected. Normal temperatures are still rising at a steady clip, so at an absolute basis, the cooling would not be as strong as mid-to-late March levels. But it would keep late-season demand riding stronger than normal. The West is the same to slightly warmer today overall. The pattern seems to get more variable again in the 11-15 day, but a seasonal to cool temperature regime is still favored for the Midwest, East and South as we work through the second week of April.”
April went off the board on a strong note Tuesday, gaining 11 cents to expire just under $4, but analysts didn’t seem that impressed. “Although the size of the rally was a show of strength, we note that the market broke no new ground as far as its recent trading range is concerned, simply snapping back from the bottom of the range at Monday’s close to close near the highs,” said Tim Evans of Citi Futures Perspective.
“Particularly since the volatility may have been a function of thinning volumes in the expiring April futures, we’re reluctant to assume that Tuesday’s strength will carry over into Wednesday’s trade. More gains are certainly possible, but we don’t view them as destined to occur.”
The seeds for further gains may already be planted as expectations are for the long-term storage surplus to evaporate. Evans predicts a 92 Bcf pull in Thursday’s storage report compared to last year’s 44 Bcf build and a five-year average build of 5 Bcf. By April 12 Evans sees the current year-on-five-year surplus sliding to a 60 Bcf deficit.
“[W]e are sticking with our general price expectations, with some chance for the market to walk somewhat higher in the near term, but with an intermediate-term downside test to follow as seasonal heating demand fades.”
Traders Thursday will be looking at a withdrawal from storage close to the century mark. Analysts at IAF Advisors see a 92 Bcf pull, and at United ICAP the estimate is 102 Bcf. Industry consultant Bentek Energy calculates the withdrawal at 89 Bcf. Last year 45 Bcf was injected and the five-year average is for a 6 Bcf increase.
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