Physical gas for Tuesday delivery was mostly higher in Monday trading as weakness in New England markets was unable to offset widespread gains in the Marcellus, Gulf, Midcontinent and California.
Weather forecasts called for falling temperatures in the Great Plains to work south by midweek into major Midwest population centers. Futures traders weren't completely buying into pervasive cold around the holiday period and noted that there was still great uncertainty regarding timing, location and duration. After a strong open, by the close January had fallen 7.6 cents to $3.719 and February had retreated 8.6 cents to $3.730. January crude oil continued to spin out of control, losing another $1.90 to $55.91/bbl., the lowest in more than five years.
In the Midwest, forecasts of falling temperatures were all that was necessary to bring buyers to the table. AccuWeather.com predicted that Monday's high in Minneapolis of 46 would dive to 24 Tuesday and fall further to 21 Wednesday. The seasonal high in Minneapolis is 27. Chicago's Monday high of 46 was expected to ease to 43 Tuesday before dropping to 30 on Wednesday, five degrees below the normal for mid December. Indianapolis' 48 high Monday was seen sliding to 47 Tuesday before ratcheting down to 35 Wednesday, three below its seasonal norm.
Next-day gas on Alliance rose 21 cents to $3.84, and deliveries to the Chicago Citygates added 14 cents to $3.75. On Consumers, next-day gas changed hands at $3.91, higher by 9 cents, and gas on MichCon came in 11 cents higher at $3.90. At Demarcation, Tuesday packages rose 28 cents to $3.74.
New England and Mid-Atlantic next-day gas followed the tracks left by next-day peak power prices. IntercontinentalExchange reported that peak power Tuesday at ISO New England's Massachusetts Hub fell $9.62 to $43.43/MWh, yet at the PJM West terminal next-day peak power rose by 95 cents to $37.60/MWh.
New England prices fell and Mid-Atlantic next-day gas was a penny higher. At the Algonquin Citygates, Tuesday parcels fell 87 cents to $4.17, and gas at Iroquois Waddington shed 5 cents to $4.05. On Tennessee Zone 6 200 L gas was seen at $4.32, down 72 cents.
Gas bound for New York City on Transco Zone 6 added 3 cents to $3.72, and gas on Tetco M-3 fell a penny to $3.17.
Wintry weather is on its way. "A cold frontal boundary will extend across the Great Lakes, the upper Midwest, the Mississippi Valley and the southern Plains on Monday," said Kari Strenfel, a meteorologist with Wunderground.com. "During the morning, an area of low pressure along the northern tier of the frontal boundary will usher light to moderate snow showers across the Dakotas and the upper Mississippi Valley. Meanwhile, a potent low-pressure system will move northeastward over the central Plains, the middle Mississippi Valley and the upper Midwest.
"As this system draws moisture from the Gulf of Mexico, heavy snow showers and freezing rain will impact the central and northern Plains, as well as the upper Mississippi Valley. In addition, showers and thunderstorms will develop ahead of the aforementioned cold front over the western Gulf Coast and the lower Mississippi Valley. Light showers will spread across the Tennessee Valley and the Ohio Valley during the late afternoon and evening. Weather conditions will remain relatively calm across the Eastern Seaboard as high pressure builds over the Mid-Atlantic."
The Marcellus posted mostly solid gains. Next-day gas on Millennium added 8 cents to $2.32, and deliveries to Transco Leidy were quoted 22 cents higher at $2.01. Gas on Tennessee Zone 4 Marcellus gained 26 cents to $2.02, and gas on Dominion South shed 4 cents to $2.59.
Natgasweather.com in a noon Monday report said the arrival of cold air next week was virtually a certainty, but "the coverage and intensity of the cold air is still far from being resolved, especially with the weather systems arriving around the Christmas Holiday. With the weather data inconsistent on how the pattern will unfold, there will be less confidence on which regions will be impacted greatest by the coldest temperatures, and also for how long, leaving quite a bit of uncertainty regarding how much heating demand will be needed through the rest of the year."
Much of Friday's 16-cent surge was predicated on colder temperatures emerging in the waning days of December. Until traders had time to think about it, they liked what they saw.
"The weekend modeling fared fairly well in continuing to gradually advance forward a significant pattern change. We still have warmer issues currently, with strong above-normal anomalies currently rolling through the Midwest, but some storminess toward the East Coast early in the six-10 day period could offer some colder risks to the forecast," said Matt Rogers, president of Commodity Weather Group in a Monday morning report.
"Some models are delivering accumulating snowfall to the big East Coast cities that could offer some lingering colder impacts into early next week before the bigger upstream colder pattern changes take hold. The various modeling continues in good agreement on rebounding a ridge of high pressure over Alaska, with many of them also generating North Atlantic ridging to also support a stronger cold pattern. Our current estimate brings colder than normal temperatures to the upper Midwest by Dec. 26, Texas by Dec. 27, and East Coast by Sunday Dec. 28th, but the timing/intensity could vary and come in stronger."
Risk managers counsel a measured strategy to deal with the market. "By week's end, the natural gas market was able to rally back up and settle slightly higher as the weather forecast predicts below-average temperatures on the East and West coasts," said Mike DeVooght, president of DEVO Capital. "We still feel the high $3.00 level will provide support in natural gas, and feel there is a good chance of a rally as we approach year-end. The funds are still carrying a near record short position in the gas market.
"Considering the complex is as weak as it is, the rally, if it should occur, will probably not be as dramatic as it was early this year. On a trade basis, we will continue to hold our long call/short put positions. For producers, we will wait for higher prices before we establish any short hedges."
DeVooght currently recommends end users hold a long Jan $4.20 call option along with a short January $3.90 put. He also says to "hold long February $4.20 call and short February $3.90 puts.