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Strong New England, Mid-Atlantic Keeps NatGas Movin' On Up; Futures Retreat

As the flow of cold arctic air meandered its way into the US next-day gas prices surged at points which hadn't been hit with the cold's paralyzing effects. Multi-dollar gains were seen at New England points, but broad overall gains were able to offset weakness in the Midwest and Marcellus. The overall market gain was 14 cents to an average of $4.28, but if the titanic moves in a handful of New England points are factored out, the figure comes in at about a 6-cent gain nationally. The Mid-Atlantic saw healthy double-digit gains and producing regions were also strong. Futures worked lower as traders factored in milder weather forecasts and at the close December was off 6.2 cents to $4.185 and January settled 6.0 cents lower at $4.284. December crude oil fell 76 cents to $77.18/bbl.

Points in New England surged higher by $2 or more as restrictions up and down Algonquin Pipeline kicked in and pervasive cold was forecast for Boston. "Cold air with staying power will settle in across the Boston area before the end of this week," said Alex Sosnowski, AccuWeather.com meteorologist. "High temperatures are forecast to be in the 40s F most days from Friday into next week. At times, [wind chill] temperatures will dip into the 20s during the daylight hours."

Algonquin Gas Transmission posted restrictions at multiple points. Flows were limited west of the Stony Point Compressor Station, east of the Southeast Compressor Station, west of Cromwell, and west of Burrillville.

Next-day deliveries at the Algonquin Citygates surged $2.66 to $8.04 and packages on Tennessee Zone 6 200 L added $2.36 to $7.68.

"During the late-night and early-morning hours, the pattern is forecast to deliver the first freezing temperatures to the city with a hard freeze (lows in the 20s) in many suburbs. While a weak system developing off the Atlantic coast may bring a stray shower of rain or wet snow Thursday night into Friday morning, a storm system will bring some rain on Sunday that could change to snow at night," said Sosnowski.

Loads and power prices were also forecast to increase. ISO New England forecast peak power load Wednesday of 16,400 MW would increase to 17,100 MW Thursday and ease slightly to 17,000 MW Friday. IntercontinentalExchange reported that peak power Thursday at the ISO New England's Massachusetts Hub jumped $14.67 to $67.21/MWh.

Gas deliveries to the Mid-Atlantic also gained ground as increased power prices and forecast higher loads prompted greater purchases of incremental gas. Gas bound for New York City on Transco Zone 6 gained 25 cents to $3.99 and deliveries to Tetco M-3 rose 26 cents to $3.96.

IntercontinentalExchange reported next-day peak power at the New York ISO's Zone G (eastern New York) delivery point rose $14.15 to $56.50/MWh and power into Zone A (western New York) jumped $19.67 to $49.67/MWh. Loads throughout the state were forecast to rise. New York ISO forecast peak load Wednesday of 19,523 MW would reach 19,912 MW Thursday and 20,087 MW Friday.

Gas at Marcellus points eased. Packages delivered Thursday on Transco Leidy fell 13 cents to $3.35 and gas on Tennessee Zone 4 Marcellus shed 32 cents to $3.15.

Gas at Gulf points rose. Parcels on Transco Zone 3 rose by 11 cents to $4.21 and gas on Tennessee 500 L came in 11 cents higher at $4.19. At the Henry Hub Thursday gas changed hands at $4.20, up 14 cents and at Katy, next-day gas added 8 cents to $4.16. At the Houston Ship Channel gas was quoted 9 cents higher at $4.16.

Futures traders see the market at the mercy of near-term weather forecasts. "The market just keeps going by the forecasts," said a New York floor trader. "It seems we get a different forecast every day. Today the 10 -15 day was called a little milder and we are off 6 cents, but I think the market will test down to $4 and see if it can hold. "I don't think current estimates of a 48 Bcf build are completely baked into prices."

The EIA storage report will be delayed one day to Friday on account of the Veteran's Day Holiday.

Weather forecasters expect the bone-chilling cold now pummeling the Midwest and Midcontinent to reach the energy markets of the Atlantic Seaboard, but not without hinting that the cold could be tempered by the jet stream. "The cold front will finally move into the Southeast and eastern US coastline Thursday after one more day of highs reaching the 60s and 70s," said Natgasweather.com in a morning report.

"There will be another very strong Canadian blast to follow early next week with sub - freezing temperatures again covering many high population regions including bringing hard freezes deep into the Southeast. This will lead to another round of much stronger than normal heating demand. However, we still see potential for a strong Pacific jet stream to crash into the western US late next week with milder weather systems, thereby forcing the bitter cold air to retreat into southern Canada. This may only be temporary though as weather systems will again have opportunity to tap into the reservoir of very cold air shortly after."

Market technicians see the bullish case requiring some more effort. "[We] still think there is room for sideways to lower prices near term after last week's short squeeze," said Brian LaRose of United ICAP. "However, that is not a necessity. To restore the up trend all the bulls need to do is clear the $4.544 high. Any continued retreat will have us looking to the ratio retracements of the $3.541 to $4.544 advance for support. [We] see ideal support being between $3.928 (.618) and $3.760 (.7862).

Tim Evans of Citi Futures Perspective sees the market in "a corrective or consolidation phase, encouraged by a temperature forecast that looks less intense than a day ago." He noted that the December contract recovered 12 cents off session lows Tuesday to finish essentially flat on the day.

"With the more moderate temperature outlook, we still see a similar pattern as a day ago, but with somewhat less heating demand and somewhat reduced storage withdrawals," he said in closing comments to clients.

"At the moment, this cold snap is looking more like a one-off event than a sustained period of strong demand. However we think it is worth bearing in mind that the temperature forecast could well shift again, and that some further cycles of cold are still likely in a heating season that has really only just gotten underway."

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