Both cash and futures markets fell Tuesday following weather reports that suggested a mild March and incorporated little in the way of blocking patterns necessary for any large-scale cold influx. Notable exceptions were New England and eastern points, which experienced double-digit price erosion as almost spring-like conditions were forecast for Boston and portions of the East Coast.
At the close of futures trading March had slipped 5.8 cents to $2.626 and April had retreated 5.1 cents to $2.773. March crude oil expired at $105.84/bbl, up a stout $2.60.
“Weather is a big nonevent in Boston and the East,” said an eastern cash trader. “I think they are having a run on shorts and tee shirts,” he mused. He added that he expected the eastern market to stay soft but fluctuate with every cold spell.
Forecasters in the East see a progression of warmer temperatures as the week wears on. “As the area of low pressure that produced snow across parts of the Mid-Atlantic continues to move farther away from the East Coast, a broad area of high pressure will build in from the west,” said AccuWeather.com meteorologist Matt Alto.
As the high pressure moves in from the West, “temperatures [Tuesday] from southern New England to the Carolinas and Georgia will be close to normal for this time of year, but this cold, dry air will be accompanied by a return of copious amounts of sunshine for most of the East. As the ridge of high pressure continues to move east, the main story for the upcoming week will be the increasing temperatures each day.”
According to AccuWeather.com figures, “temperatures will continue to climb into the middle to upper 50s across much of the mid-Atlantic. The 50s could reach as far north as the New York City metropolitan area. Afternoon highs will generally be nearly 10 degrees above normal for this time of year. In addition to the East Coast, temperatures will also warm this week across the Tennessee and Ohio valleys,” the forecaster said.
Prices at Algonquin Citygate lead the charge lower posting a loss of just under a half dollar, but quotes at Tennessee Zone 6 200L weren’t far behind falling just under 40 cents. Deliveries to Iroquois Waddington shed nearly a quarter.
Prices at Rocky Mountain points eased as well. “We were down about 7 cents Tuesday, but we didn’t expect the higher Rockies prices for the weekend,” said a Denver trader. He added that his current average daily price was running about 8 cents below February index.
CIG mainline, Opal and Northwest Pipeline Wyoming all experienced losses of just under a dime, but at Cheyenne quotes were closer to a nickel lower.
In the Midcontinent prices were down moderately. NGPL Midcontinent and Panhandle were off just over a nickel, and on ANR SW gas for delivery Wednesday slipped a couple of pennies.
Softer cash quotes may continue as major energy markets are anticipated to have warmer-than-normal temperatures. In its six- to 10-day outlook, Commodity Weather Group of Bethesda, MD, predicts above-normal temperatures south and east of a circuitous line from southern New York to Tennessee to South Texas. The Northern Plains, Rockies and West Coast are seen as having below-normal readings.
“The models over the holiday weekend certainly struggled with daily forecast details in the six- to 15-day space, but the general big picture theme continues for a warm-leaning situation in the East and South,” said Matt Rogers, president of the firm. “Some cold pushes could work their way into these areas (like the one this coming weekend), but the warm events should be stronger (for example, DC could be 70F on Thursday this week). We continue to watch for signs of the expected stronger warming trends deeper into March. The lack of significant blocking, the progression of the MJO [Madden Julian Oscillation] and the preference for troughing toward the West Coast should propel stronger warming into the 11- to 15-day [forecast] for the Midwest, East and South in the coming days.”
Futures prices declined, but talk circulated of further production cuts. “There are two things going on. Prices would like to slip lower, but companies are thinking about their equities price and cutting production again to hold up the market,” said a New York floor trader.
“Otherwise, this market would love to break down to $1.80. I don’t know if any production cuts are going to be enough to keep the market up. We are expected in New York to have two days of 60 degrees this week
“The market rallied up from the $2.50s and failed up against $2.70 [Tuesday], and today’s settlement is about half way between. We’ll see if it falls to the low $2.50s and if it breaks below that, it should start to work lower. If they cut production, the market will likely hold in the mid $2.30s to low $2.40s.” The trader added that all the chatter about market cutbacks was necessary to hold the market up.
“We are holding in the middle of the range, but if we get a bearish [withdrawal] number, that will be enough to drive the market back down again,” he said.
Funds and managed accounts aren’t looking for the market to be driven lower, at least according to government figures. The Commodity Futures Trading Commission in its Commitments of Traders Report for Feb. 14 showed managed money favoring the long side of the market.
Directional traders at IntercontinentalExchange increased holdings of long futures and options (2,500 MMBtu per contract) by 21,411 contracts to 543,014 and short contracts increased by 29,250 to 304,927. At the New York Mercantile Exchange long futures and options (10,000 MMBtu per contract) held by managed money increased by a modest 3,090 contracts to 222,548 and short holdings declined by 6,007 to 284,254. When adjusted for contract size long positions at both exchanges increased by 8,442 and short holdings rose by 1,305.
For the five trading days ended Feb. 14 March futures rose 6.0 cents to $2.532.
Technical analysts see the market on the cusp of a move higher but said an early strong start is crucial. “[We] see only one hurdle standing in the way of confirming an ABC [pattern higher] in progress from $2.231, 2.736,” said Brian LaRose, analyst with United-ICAP. In his view, if the market were to “clear this level to start the week, the A=C objectives from $2.231 will be our initial upside targets. A=C cuts at $3.018, and 1.618 A=C cuts at $3.397. Fail to get above $2.736 to start the week, we will be looking to the ratio retracements of the move up from $2.405 for support,” he said in closing comments Friday to clients.
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