Cash prices across the board were mainly weak Wednesday for Thursday delivery, but a large weather system heading south out of Canada was able to lift quotes on Midcontinent pipelines as the system was forecast to head east. Rockies quotes followed Tuesday’s futures swan dive, and eastern traders unloaded gas as they digested near-term weather forecasts.
Weather.com forecast that Denver and Seattle would be the cold spots in the nation Thursday with highs reaching just 49 and 47 degrees, respectively, and highs elsewhere would be more seasonal. New York was expected to see a high of 61; Chicago, 52; and Dallas, 61.
“We’re just a little to the east and we are just getting rain, but to the west it looks more ominous,” said a Midwest marketer. “Most of the snow is not going to hit us, at least that is what they are telling us.”
He added that prices did rise, “but no huge spikes or anything like that.” His figures showed ANR SW up by four to four and a half cents and Chicago Citygate quotes were up by about 2 cents.
The system that pounded Denver and the Rockies Wednesday was expected to have a greater impact on Thursday’s prices for Friday but he cautioned that the effect might be minimal as “Friday loads usually trail off a little bit.”
The trader noted that pipelines in the Great Plains and Midwest were not under any great stress as “storage is right about where it was last year and we are looking for something in the mid-70 Bcf for an injection number. There’s lots of capacity and lots of gas looking for a home. This is just like the first little bit of cold air, and next week we go right back up into the upper 50s. This looks like a flash in the pan type of thing.
“This is actually a little bit of fun for their hasn’t been much activity for the last several weeks. A lot of companies like us have a lot of capacity on pipelines starting in November, and we’d like to fill it since we are paying for it.”
According to IntercontinentalExchange data, prices on CIG were off more than 10 cents and a Rockies marketer ascribed that to Tuesday’s 15-cent pounding of the December futures contract. “It’s more a function of what the futures did the day before,” said a Denver trader.
As soft as the CIG numbers were, he noted that the differential to the Henry Hub was at a historic low. “It was 5 cents [under] Tuesday and 6 cents Wednesday and that’s very low [spot basis], but most guys will try to lock in deals a year or two out. My experience has been that the one- to two-year differential will move the same way as the spot differential but not nearly as much.
Whether the super-strong Rocky Mountain basis is here to stay is a matter of debate, but with recent significant expansions in pipeline capacity out of the Rockies, the tendency for Rockies gas to trade close to Henry Hub may be around for a while.
“Depending on who you talk to, we’ve got surplus capacity out of the Rockies of 2-3 Bcf/d. We don’t have a regional surplus any more. The problem with the gas market is the Haynesville, Eagle Ford and Marcellus; they are the ones flooding the market,” he said.
Eastern prices slumped. Deliveries to Algonquin fell more than 10.5 cents; gas to Tetco M-3 slid more than 4.5 cents, and parcels into Transco Zone 6 dropped more than 7 cents.
“When I look at my six- to 10-day outlook, I am seeing temperatures all across the East and into the Gulf Region and South Texas 2-5 degrees above average. Now guys are seeing warmer temperatures and along with the futures being off, that’s why they are selling some of their gas off,” said an eastern trader.
Futures fell but nowhere near as much as on Tuesday. January and February were both off more than 3 cents on light volume (see related story).
The trader added, “Specifically in the Northeast region temperature is a big, big deal to them, and once traders get into a situation where a February [Transco] Z-6 or a January Z-6 may be in the $4 or $5 range, they don’t want to be short that. Now that it looks warmer for a six- to 10-day outlook, you’ll see some people that want to get out before prices fall too far.
“Going into winter, no one wants to be short the winter strip, and you see a lot of strength and a lot of bids come in, but once November [futures] expires like it did last week and people get their idea of weather, they’ll try to roll off their November position and get a grasp of the rest of the winter.”
Thursday’s storage report will draw a lot of attention as indications are for another build likely to put storage well over the five-year average and close the gap relative to last year’s record season-ending inventory. Last year 67 Bcf was injected and the five-year pace stands at 35 Bcf. Along with the Midwest marketer’s estimate of a build in the 70 Bcf range, ICAP projects a 67 Bcf increase and a Reuters survey of 25 analysts and traders showed an average 69 Bcf gain from a sample of 25 industry observers.
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