Next-day physical gas vaulted nearly $1 in Monday's trading as a trifecta of increased power loads, double-digit peak power gains, and forecasts of coast-to-coast cooler temperatures combined to send prices soaring.
Nearly all market points posted hefty double-digit gains and only a few scattered points in the Gulf and Midcontinent were excluded from the party. The overall market gained 93 cents. Futures prices rallied as well with the expiring January contract adding a hefty 18.2 cents to go off the board at $3.189 and February advancing 16.6 cents to $3.199. February crude oil posted another five-year low falling $1.12 to $53.61/bbl.
New England and eastern next-day gas lead the charge higher with multi-dollar gains as peak power prices surged and increased loads were forecast. IntercontinentalExchange reported peak power at the ISO New England's Massachusetts Hub jumped $20.33 to $80.83/MWh. and peak power at the PJM West terminal for Tuesday gained $2.42 to $38.74/MWh.
Power loads were also expected to rise. ISO New England forecast that peak load Monday of 18,180 MW would rise to 18,940 MW Tuesday before easing slightly to 18,670 MW Wednesday. The New York ISO forecast peak demand Monday of 20,735 MW would reach 21,350 MW Tueday and 20,918 MW Wednesday. The PJM Interconnection said expected peak load Monday of 36,983 MW would climb to 39,506 MW Tuesday and 41,555 MW Wednesday.
Gas for next-day delivery at the Algonquin Citygates jumped $8.82 to $12.44 and deliveries to Iroquois Waddington added $1.28 to $4.42. Gas on Tennessee Zone 6 200 L surged $7.02 to $10.85.
Deliveries to New York City on Transco Zone 6 rose $1.90 to $3.29 and gas on Tetco M-3 added $1.15 to $2.40.
Prices in the Marcellus, not so much. On Millennium gas for Tuesday came in at $1.87, up 55 cents and gas on Transco Leidy changed hands 51 cents higher at $1.66. Deliveries on Tennessee Zone 4 Marcellus rose by 59 cents to $1.71 and on Dominion South Tuesday packages were seen at $1.98, up 85 cents.
Gulf points lagged the overall market increase. Gas on ANR SE gained 38 cents to $3.01 and parcels on Transco Zone 3 added 40 cents as well to $3.05. At the Henry Hub next-day gas rose 25 cents to $3.01. On Tennessee 500 L Tuesday gas was seen 39 cents higher at $3.02 and at Katy next-day gas jumped 48 cents to $3.06.
Weather forecasters were calling for coast-to-coast cold. AccuWeather.com meteorologists reported that "As the year comes to a close and people prepare to celebrate the start of 2015, many will be bundling up as cold weather stretches from coast to coast. Waves of arctic air will descend across the western and central United States during the first half of this week, even plunging down to the Mexican border," said AccuWeather.com Senior Meteorologist Kristina Pydynowski.
"Colder, more seasonable air will progress into the Northeast into New Year's Eve,"she said [and] "Unlike Thanksgiving and Christmas, no major storm looms on the day leading up to 2015. This is good news for those planning to travel across the regions in the days prior to the new year as there should be very few weather-related delays. Wind gusts from the west will make it feel even colder with [wind chill] temperatures in the single digits. Dry conditions are expected to accompany the chilly weather with the exception of some snow showers downwind of the Great Lakes; although no significant accumulations are expected."
Next-day prices in the Rockies bounded over typically higher priced markets on the West Coast and Gulf as Green River Basin temperatures were predicted to plummet risking well freeze-offs. AccuWeather.com predicted the high Monday in Pinedale, WY of 11 would drop to 1 Tuesday before climbing back to 13 Wednesday. The normal high in Pinedale is 26. Rock Springs Monday high of 9 was expected to drop to 0 Tuesday and rise to 6 by Wednesday. The seasonal high in Rock Springs is 30.
"When we get really cold weather here in the Rockies, that's when you see that differential to other points narrow or even go to a premium," noted a Denver producer. "We are a small market, but we are gas-intensive when it comes to the winter."
Tuesday packages on CIG Mainline soared $1.05 to $3.94 and deliveries at the Cheyenne Hub added $1.02 to $3.83. Gas at Opal rose $1.05 to $3.86 and gas on Northwest Pipeline WY gained 80 cents to $3.61.
Deliveries to Malin rose by 69 cents to $3.54 and packages at the PG&E Citygates came in 14 cents higher at $3.51. Gas at the SoCal Citygates rose 81 cents to $3.63 and deliveries to the SoCal Border jumped 81 cents to $3.63.
Analysts see the day's price advance running headlong into expectations for strong production growth. Tim Evans of Citi Futures Perspective said the day's gains came "amid forecasts for below normal temperatures across Canada and much of the continental US over the next two weeks. However, while the weather map itself looks moderately supportive, it may not be enough to translate into supportive storage comparisons due to ongoing production growth."
Longer term weather forecasts overnight changed little. WSI Corp. in its morning report said, "The 11-15 day period forecast is not as cold or warmer than previous forecasts, except across the Northeast. This is due to model trends and the period shift. Forecast confidence is about average today. Despite the model differences during the six-10 day period, medium-range models are in reasonably good agreement with the evolution of the large-scale pattern across the Pacific and North America during the 11-15 day time frame.
"The possible transition of the pattern toward a negative PNA [Pacific North American pattern] and a positive NAO [North Atlantic Oscillation] supports an upside risk across the southern and eastern U.S. The West Coast has a risk to the cooler side."
Cooler temperatures are in the forecast for next week, but the market impact is far from determined. Bone-chilling cold capable of significant heat use seems to be off the table in the East and Midwest. WSI forecasts that next week's Sunday high in Boston of 41 will fall to 27 by Tuesday and inch up to 28 on Thursday. The normal high in Boston is 36. New York City's Sunday high of 42 is forecast to drop to 31 Tuesday and ease to 29 Thursday. The seasonal high in New York City is 40. Chicago's 35 high on Sunday is seen sliding to 25 Tuesday and falling further to 22 Thursday. The normal high in the Windy City is 31.
Risk managers see nominal upside risk. "As we look forward, it continues to be difficult to build a bullish case for natural gas on a fundamental basis. But with the record short positions that the funds are holding, a cold snap could spark a healthy short-covering rally," said Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm. "As we approach year-end, the pressure is on the longs to liquidate their positions, but as we look forward to the New Year, the shorts will have to re-evaluate the risk/reward of being short natural gas under $3.00. On a trade basis, we will continue to hold current positions and re-evaluate after the beginning of the New Year."
DeVooght advises trading accounts to roll long January $4.20 calls and short January $3.90 put options to February. Current long February $4.20 calls and short February $3.90 puts should be held. End-users are advised to do the same. No strategy has yet been devised for producers and physical market longs.