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No Bear Left Unscathed; Cash and Futures Vault Higher

Physical gas for delivery Tuesday rocketed higher in Monday's trading as temperature forecasts of as much as 20 degrees below normal gripped major East Coast population centers.

Quotes in New England jumped more than $5 in some instances, but with the exception of the Marcellus, all points scored hefty double-digit gains. Power loads and prices surged. The average rise in next-day gas was 68 cents, and the strength in cash pricing was not lost on futures traders. At the close, December had added 32.1 cents to $4.341 and January had added 31.5 cents to $4.444. December crude oil fell 18 cents to $75.64/bbl.

The day's greatest gains were seen in New England and the Mid-Atlantic. According to AccuWeather.com, Boston's Monday high of 52 degrees was expected to drop to 37 Tuesday and Wednesday, well below the seasonal norm of 51. New York City's 51 high on Monday was seen falling to 32 Tuesday and 34 on Wednesday. The normal mid-November high in New York is 53. In Philadelphia the high Monday of 51 was predicted to drop to 33 Tuesday and climb back to 35 on Wednesday. The normal high in Philadelphia is 55.

Gas at the Algonquin Citygates surged $4.28 to $10.78, and deliveries to Iroquois Waddington gained $1.60 to $6.15. Packages on Tennessee Zone 6 200 L were quoted $4.59 higher at $10.75.

Gas headed to New York City on Transco Zone 6 was just as strong. Gas for Tuesday delivery on Transco Zone 6 New York added $5.80 to $9.40, and deliveries on Tetco M-3 added $1.11 to $4.67.

Power loads and prices also advanced. ISO New England forecast peak load Monday of 17,740 MW would rise to 18,350 MW Tuesday and 18.500 MW Wednesday. Across the expansive PJM footprint, Monday peak load of 37,001 MW was expected to jump to 40,785 MW Tuesday and 38,851 MW Wednesday.

At IntercontinentalExchange (ICE), Tuesday peak power at the ISO New England's Massachusetts Hub rose $16.62 to $80.68/MWh, and at the PJM West terminal next-day peak power changed hands at $66.17/MWh, up $12.89.

Peak power Tuesday at the New York ISO's Zone A delivery point (western New York) gained $7.33 to $57.00/MWh, and peak power at Zone G (eastern New York) added $1.67 to $66.00/ MWh, ICE said.

Some Marcellus points saw declines. Packages on Transco Leidy came in at $2.57, down 28 cents, while gas on Tennessee Zone 4 Marcellus gained 11 cents to $2.64.

On Millennium, next-day deliveries were quoted at $3.45, up 32 cents, and gas on Dominion South added 59 cents to $3.83.

"The coldest air since last winter, now over the Plains and Midwest, will blast into the East during the first half of this week," said AccuWeather.com meteorologist Brian Lada. "The core of the frigid air will focus over the northern Plains and the Great Lakes through at least Wednesday with overnight lows dipping down into the teens, single digits and even near zero F in the coldest spots.

"Bone-chilling nights will be followed up by frosty cold days with highs struggling to reach the 20-degree mark over the regions on Monday and Tuesday. Some locations in the Central states are forecast to stay below 20 F until Wednesday afternoon, including Minneapolis. While much of the Northeast escaped the cold on Monday, the arctic air will sweep through the region by Tuesday.

"Highs temperatures from Washington, DC, through New York City are forecast to stay near or below freezing on Tuesday, levels that would be considered below normal even during the heart of winter. A biting wind from the northwest will make it feel even colder with [wind chill] staying in the teens throughout the day along the I-95 corridor."

Futures traders saw the market in a new range. "We settled at $4.341 and that takes us above $4.25. The next [resistance] level is $4.50," said a New York floor trader. "I think you will get some pockets of weakness just on profit-taking, but the trend is higher.

"The volume in the December contract alone was 140,000 contracts, and that looks like high-quality, big business that's trading. It has to be significant at this point and everyone seems to be on the same page."

Weather forecasts had turned colder. MDA Weather Services in its Monday morning 11- to 15-day outlook showed below-normal temperatures east of a line from southern Wisconsin to West Texas, and west of a line from Montana to western Arizona is expected to be above normal.

"A moderate cold change was made to the extended-range period over the weekend as cold air moves in faster and stronger compared to Friday's outlook. This cold appears most potent early over the Midcontinent before shifting into the East and South as the period progresses.

"Low confidence accompanies the forecast today, especially in the second half. Here the models struggle with handling potential blocking, with the European showing a weak -NAO [North Atlantic Oscillation] and the development of a weak +WPO [Western Pacific Oscillation] set up over the west to central Pacific, with the GFS [Global Forecast System] stronger here.

"The potential for more blocking and a weaker +WPO brings colder risks to the Northeast and Great Lakes. Warmth could struggle to build persistently into the Rockies and Plains."

The National Weather Service said heating requirements are expected to be well above normal for the week ended Nov. 22 in key energy-consuming markets. New England is expected to shiver under 207 heating degree days (HDD), 30 above normal, and the Mid-Atlantic is expected to see 210 HDD, or 47 more than its seasonal average. The greater Midwest from Ohio to Wisconsin is forecast to endure 275 HDD, or 89 more than normal.

Risk managers are in no hurry to sell more distant winter months. "Technical selling, hedge selling and the cash market lagging the futures helped to push the market lower [last week]," said Mike DeVooght, president of DEVO Capital, in a weekly report to clients. "Fund buying, which are still holding a large short position, helped to exaggerate the rally over the past two weeks. The funds are still holding the majority of their short positions. With the pullback to the $4.00 level and holding, we feel there is a good chance the gas market could have another bull run in the next couple months.

"On a trade basis, we will continue to hold our long calls and we resold our short puts, which we covered the end of last week. For producers, we are still looking to establishing short hedges if we get in the mid $4.00 level on the forward six and 12 month strip. We are in no rush to sell the balance of the winter strip at this time. If considering just locking in the winter, we would do so in the $4.70-4.90 range."

For end-user and trading accounts DEVO advises a combination of calls and puts. Trading accounts are advised to hold long January $4.20 calls against a sale of January $3.90 puts. The firm also advises buying February $4.20 calls and selling January $3.90 puts. End-users are advised to pursue the same strategy.

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