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Looking For Weather, Physical and Futures Prices Dance Lower

Next-day gas prices fell across a broad front in Monday's trading, with fluctuating weather forecasts, mixed power prices and a weak screen all doing their share to drive physical prices lower.

Only a handful of widely scattered points rose, and most other points fell from 25-50 cents. The average decline nationally was 36 cents. Futures prices continued their march lower from last week, and at the close January had lost 8.1 cents to $4.007 and February was off 7.6 cents to $4.009. January crude oil managed to recover somewhat from Friday's $7.00-plus decline and added $2.85 to $69.00/bbl.

Price declines approaching $1.00 were seen in the Northeast as temperature forecasts called for widely fluctuating readings. AccuWeather.com predicted that Monday's 64 high in Boston would plunge to 38 on Tuesday, but rebound to 56 by Wednesday. The normal high in Boston in early December is 46. New York City's forecast high of 64 Monday was anticipated to plunge to 34 Tuesday but increase to 40 on Wednesday. The normal high is 48. Philadelphia was expected to see its Monday high of 65 free fall to 42 Tuesday and climb to 55 Wednesday. The seasonal high in Philadelphia is 50.

Quotes at the Algonquin Citygates tumbled 76 cents to $4.79, and deliveries to Iroquois Waddington dropped 37 cents to $4.41. Gas on Tennessee Zone 6 200 L retreated 62 cents to $4.79.

In the Mid-Atlantic, gas headed for New York City on Transco Zone 6 was seen 24 cents lower at $3.76, and gas on Tetco M-3 was off 34 cents to $3.16.

Appalachia and the Marcellus next-day deliveries came in mixed. Packages on Millennium were seen 20 cents lower at $2.65, but gas on Transco Leidy rose by 18 cents to $2.20. Gas on Tennessee Zone 4 Marcellus was up 2 cents at $2.04, and gas on Dominion South changed hands at $2.75, down 25 cents.

New England weather was seen taking some twists and turns.

"A temperature roller coaster is in store for the Boston area this week with the weather ranging from unusually warm to raw and chilly with rain and even a wintry mix in some areas," said AccuWeather.com meteorologist Alex Sosnowski.

"After the week got off to a warm start with highs in the 60s on Monday, Tuesday will be sharply colder with a high in the 30s. The average high for early December in Boston is in the middle 40s. A return of moisture will lead to some rain, drizzle and perhaps sleet around the city Tuesday night. However, areas well north and west of the city will have to contend with near-freezing temperatures for a time, some snow and ice, and the potential for slippery travel.

"Temperatures will again rebound around on Wednesday afternoon. Since spotty rain showers may affect the area throughout Wednesday, people spending time outdoors may want to bring along an umbrella. Chilly air is forecast to again return to the region Thursday night into Friday with the potential for another wintry mix event by the end of the week over some interior locations of the Northeast."

Next-day power prices were mixed. IntercontinentalExchange reported that peak Tuesday power at the ISO New England's Massachusetts Hub fell $6.55 to $47.20/MWh. At the PJM West terminal, however, next day peak power rose $4.51 to $44.81/MWh.

Gulf points were also weak. At the Henry Hub, next-day parcels fell 34 cents to $3.90, and gas on Tennessee 500 L dropped 36 cents to $3.83. Deliveries to Transco Zone 3 gave up 38 cents to $3.79, and at the Houston Ship Channel, next day gas changed hands at $3.82, down 34 cents. At Katy, Tuesday deliveries lost 35 cents to $3.81.

West Coast prices fell as a broad area of rain and moisture moved inland.

"Drenching rain will spread over California on Tuesday, bringing some relief to the ongoing drought and raising the risk of flash flooding," said AccuWeather.com meteorologist Brian Lada. "While a series of storms have brought rain to parts of northern and central California over the past few weeks, Tuesday's storm will bring the first significant rain event for Southern California since the spring. Some rain moved over part of the state on Sunday ahead of this week's storm, giving a preview of what is to come."

Gas for delivery Tuesday at Malin shed 26 cents to $4.07, and deliveries to PG&E Citygate were off by 39 cents to $4.27. At the SoCal Citgygates, parcels for Tuesday skidded 33 cents to $4.26, and at the SoCal Border next-day gas was quoted at $4.01, down 41 cents. Gas on El Paso S Mainline dropped 44 cents to $3.97.

Weather forecasts moderated in the near- to mid-term. WSI Corp. in its Monday morning 11- to 15 day outlook showed most of the country at normal to above normal temperatures with the exception of a strip running from southern Virginia to southernmost Texas. No part of the country is expected to be below normal.

Monday’s “11-15 day period forecast is warmer than the previous forecast over the much of the nation, except the Southeast,” said WSI. “Confidence in the forecast is average as medium-range models are in rather good agreement with the large-scale pattern."

Risks to the forecast include "a slight downside risk along the East Coast into the South early in the period. Split flow may also result in a slight downside risk across the Southwest into Texas late in the period. Otherwise, the northern U.S. may run even warmer."

Analysts see short sellers piling on as meaningful cold for December proves elusive.

"The free-fall in natural gas prices continues as the absence of cold weather in the forecasts motivates short-sellers," said BNP Paribas’ Teri Viswanath, director of natural gas trading strategy.

"The current weather guidance suggests an entrenched pattern warm weather will dominate the north-central states through mid-December. Starting toward the end of the week, temperatures in key Midwest cities are anticipated to average 3-6 degrees above normal for this time of year...Despite slightly colder changes for the start of the current week, the market is looking beyond the next few days and seeing an absence of cold air in the longer range period.   

"Last Wednesday we warned that a cold start to the season had little bearing on the balance of the season and that the pre-winter rally looked vulnerable to a correction. This remark has obviously proved prescient in light of the subsequent sell-off that has taken place. Lacking the reassurance of persistent cold weather this month, the market has now breached the $4 price-floor that developed as a result of the cold weather last month," Viswanath said.

In surveying the trading landscape, Tom Saal in his work with Market Profile said, "Good ‘old fashioned’ price volatility is back." He is looking for the market to test last week's value area at $4.373-4.137 and then test $3.927-3.727.

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