Physical gas prices for Thursday delivery bounded higher on Wednesday at all points, as not only were cooler temperatures forecast in major population centers, but a series of cold fronts were expected to periodically charge across the country with little in the way of relief seen in the foreseeable future.
Gains of a half dollar or more were generally reserved for Northeast points, but all market zones and producing zones followed by NGI registered healthy gains. The overall market advance was 33 cents.
Futures kept their winning streak alive with December contract making it seven in a row with a gain of 6.5 cents to $4.194 after trading overnight as high as $4.31. January settled 6.1 cents higher at $4.287, and December crude oil reversed its losing ways, adding $1.49 to $78.68/bbl.
Multiple cold fronts were forecast to traverse the Mid-Atlantic. The National Weather Service in suburban Philadelphia forecast "a weak cold front” to cross the region Wednesday afternoon. :An area of low pressure over the plains will approach the area on Thursday, bringing a warm front through during the day followed by a strong cold front Thursday night.
“High pressure will build back in for Friday into Saturday. Another weak cold front will move across the region on Sunday. Behind this front, high pressure is expected to build over the area for Monday and move northeastward on Tuesday as another cold front approaches."
Market centers across the country were forecast to see temperatures falling below seasonal norms. Wunderground.com predicted the high Wednesday in Philadelphia of 64 would slide to 59 Thursday and 52 by Friday. The normal high in Philadelphia is 56. Pittsburgh's 60 on Wednesday was seen dropping to 57 Thursday and to 45 on Friday. The seasonal high in Pittsburgh is 56. Chicago's 57 reading on Wednesday was predicted to drop to 47 Thursday and 45 by Friday. The normal early November high in the Windy City is 54.
Next-day power prices also responded. IntercontinentalExchange reported that Thursday peak power at the ISO New England's Massachusetts Hub rose a stout $6.61 to $46.75/MWh, and next-day peak power at the PJM West terminal gained $6.46 to $44.42/MWh.
Peak loads across ISO New England were forecast to increase, but peak requirements across the broad PJM footprint were seen declining. ISO New England forecast that peak power Wednesday of 16,150 MW would rise to 16,410 MW Thursday and ease to 16,120 MW Friday. The PJM Interconnection was looking for peak loads Wednesday of 33,395 MW to slide to 32,990 MW Thursday and 32,894 MW Friday.
One forecaster called for PJM to see windy and cold conditions enabling healthy wind generation. WSI Corp. in its Wednesday morning forecast said "the tail end of a cold front will remain a focal point for some wet weather across West Virginia into Kentucky. A complex storm system is expected to develop and intensify over the northeastern U.S. overnight into the end of the week.
“Rain may overspread the power pool...through Thursday. Windy and colder conditions are expected in wake of the storm by Friday, though scattered snow showers are possible down the spine of the Appalachians. High pressure and cool conditions are expected by Saturday, but yet another quick moving system and cold front may bring a few showers into western PJM by the end of the day. Period precipitation amounts may range from 0.25-1 inch.”
Wind generation was expected to “briefly drop off” Wednesday “but rebound overnight into the end of the week due to the expected storm system. Output may range 3-4 GW. The next cold front may continue to support elevated wind generation into the weekend."
Gas for delivery Thursday to New York City on Transco Zone 6 rose 45 cents to $3.28, and deliveries on Tetco M-3 jumped 66 cents to $3.36.
New England points gained even more. Deliveries to the Algonquin Citygates added 69 cents to $4.06, and packages at Iroquois Waddington were quoted 51 cents higher at $4.15. Gas on Millennium rose 47 cents to $3.01.
In the Marcellus region, packages on Dominion South were seen higher by 68 cents to $3.19, and gas on Transco Leidy changed hands at $3.09, 65 cents higher. On Tennessee Zone 4, Marcellus next-day parcels came in at $2.76, up 39 cents.
In the Midwest, next-day gas surged higher as well. Gas on Alliance was quoted at $4.05, up 33 cents, and deliveries to the Chicago Citygates came in 31 cents higher at $4.03. Gas on Consumers was seen 23 cents higher at $3.96, and Thursday deliveries to Michcon changed hands 31 cents higher at $4.04. At Demarcation, next-day gas gained 36 cents to $3.95.
“It looks like up, up and away, and it’s all about the weather,” said a New York floor trader. “It's amazing how many 15-day forecasts come out, but I don't think we are done to the upside.
"I think we have a chance to test $4.35-4.38 and then pull back from there. Traders are waiting to see if sustained cold is going to come in the next 15 to 25 days, and I would not be short here. I would look to sell at $4.35-4.40."
If Thursday's Energy Information Administration inventory figures come in a little thin, the market may indeed test those upper levels, but all indications are that the one-year and five-year storage deficits should take some big hits. Last year, 35 Bcf was injected and the five-year pace stands at 42 Bcf.
Analyst projections are considerably higher. Citi Futures Perspective calculates an 87 Bcf increase, and analysts at United-ICAP are looking for a build of 82 Bcf. A Reuters poll of 27 traders and analysts revealed a sample mean of 85 Bcf with a range of 75 Bcf to 90 Bcf.
"Weather sentiment will remain bullish over the next week as a series of progressively colder weather systems sweep through the northern U.S.," said Natgasweather.com in its Wednesday morning report.
"The ones arriving Thursday and late Saturday are not exceptionally cold and fairly typical of November, but the one for next week will bring well below freezing Arctic air over the northern U.S. The anticipation of it will likely to keep the markets on edge for days to come. The result of these coming weather systems will likely result in the first draw of the season after the next two weeks bring the final builds," the forecaster said.
"As long as weather patterns remain chilly over the northeastern U.S. into the third week of November, bullish weather sentiment should persist with the potential for higher prices. There will be breaks after next week where temperatures warm to near normal, allowing the cold pool over northern Canada to reorganize. Although, there is nothing in the weather or climate data to suggest the active and chilly pattern will end anytime soon."
Technical analysts also see a strong case for advancing natural gas prices. "If we were in a continuing downtrend we would not have taken out the upper bound of a downtrending wedge and we would not have been able to get above the 0.7862 retracement of this last leg down at $4.04," said Brian LaRose, a technical analyst at United ICAP, in a post-close webcast to clients Tuesday.
"What this tells us is that there is a significant low in place at $3.54, and the question is, how far do we go from here?" LaRose looks to wave count models and one scenario is that the market will make a "B" wave higher, which will have a minimum implied target of $6.37 and a more likely objective "closer to $8.13, and possibly even a $10 handle from here."
LaRose also said there were fundamental factors pointing to higher prices. "If we get another polar vortex, we could easily draw down supplies just as quickly as we did last year. We could certainly see bottlenecks which would cause price spikes. Those bottlenecks have not been fixed. People will be a little bit more prepared this year, but the overall fundamental risk is to the upside.
"An average seasonal cycle advance of 107% would take us up to the $7.33 area. Can we get there? Either way whether we are talking a monster rally or even a short term rally, the trend very likely is higher from here."