Prices for the last four days of May fell across the board Friday. As a source had predicted, the market weakened under the pressure of milder weather trends, Thursday’s expiration-day drop of 19.2 cents in June futures, a second straight bearish storage report and the greater loss of industrial load associated with a holiday weekend.
Declines ranged from about a nickel to nearly 40 cents. The West, where excess supply issues were arising and record-breaking heat in the Pacific Northwest was due to end over the weekend, garnered the lion’s share of Friday’s biggest losses. A high-linepack OFO by SoCalGas (see Transportation Notes) contributed to the western market’s slide; Southern California border numbers fell a quarter.
Meanwhile, Gulf Coast and Appalachian pipes along with Midwest citygates tended to hold on to their price values better than others by recording most of the drops around a dime or less.
With an out-of-season Nor’easter having moved out to sea, the Northeast was returning to near-normal temperatures for late May Friday for the first time in nearly a week, said a producer who trades the region. He expects prices to rebound Tuesday because of July futures gaining nearly 16 cents Friday, but said there would not be any new weather load for additional support.
He noted that the advent of July as the new prompt month put the screen about 15 cents above Henry Hub cash numbers Friday, in contrast to the Hub being at a premium to futures in the last week or so of the June contract’s trading. Earlier forecasts had been talking about the Northeast being five to 10 degrees below average in first week and a half of June, but now it looks more like normal temperatures will prevail, he said.
A utility buyer in the Lower Midwest said the market was very quiet for her, since her company’s load is very low due to an extended period of nice weather. While nearly all market players have been putting gas into storage for nearly two months now, she said her utility will not begin its injections until June 1 because of requirements by storage operator Northern Natural Gas. The buyer did not obtain any baseload for May, but she was making purchases in the June bidweek because of the new storage needs.
It’s been a very mild spring-summer transition in the Northeast, said a regional marketer. He added that basis has “held together well” during the last two shoulder months, with Northeast citygates running 40-60 cents over Henry Hub levels. “Often you see it [basis] collapse to 20-30 cents” in such periods, he said. The marketer attributed part of the reason for strong basis spreads to an unusually large number of nuclear plants in the Northeast being down due to “aggressive maintenance” in April and May combined with unexpected outages. “But now nearly all the nukes are healthy again and gas is on the margin,” he said.
The marketer noted that in recent months heavy fuel oil often has been dispatched ahead of gas for Northeast power production, but said gas is gaining ground now. There are limits on burning fuel oil in the region, he said, and using it 365 days a year “is out of the question.” Also, he went on, it seems that each year the authorities are ratcheting down the annual number of days on which fuel oil can be burned.
There was little sign of any new June business being done Friday, said a producer whose company had wrapped up all its bidweek trading the day before. The start of a holiday weekend had quite a bit to do with Friday’s lack of activity, he said. It was obvious by then that June indexes would be “way down” from May’s, the producer added.
Citigroup analyst Kyle Cooper looks for this week’s storage report to be similar to the last one, saying his initial estimation is for a build in the low 90s Bcf for the week ending May 27.
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