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New England, Marcellus Partially Offset Wider Declines; Futures Tumble

Physical natural gas for Tuesday delivery was generally lower in Monday's trading, but a one-day cold snap along with surging power prices was able to elevate New England and to a lesser extent Marcellus prices. Those gains were unable to offset broad setbacks at most other market points including the Mid-Atlantic, Midwest, and Midcontinent.

The overall market decline came in at 9 cents. Futures fell hard and fell often taking their cues from weather forecasts calling for widespread warming after the current cold dissipates. At the close February was down 15.1 cents to $2.795 and March tumbled 15.2 cents to $2.795 as well. Crude oil returned to its losing ways with February plunging $2.29 to $46.07/bbl., the lowest in more than five years.

New England next-day gas prices scooted higher as double digit gains in next-day peak power along with a healthy drop in temperatures combined to keep a firm bid under the market. IntercontinentalExchange reported that next-day peak power at the ISO New England's Massachusetts Hub jumped $23.55 to $94.88/MWh and peak power at the New York ISO G (eastern New York) for Tuesday delivery added $16.05 to $77.00/MWh. Next-day peak power also rose across the broad PJM footprint. Peak power at the PJM West terminal added $6.62 to $46.63/MWh.

Northeast and to a lesser extent Marcellus gas prices responded accordingly. Gas at the Algonquin Citygates jumped $2.14 to $12.16 and deliveries to Iroquois Waddington added $2.13 cents to $10.24. Gas on Tennessee Zone 6 200 L rose a stout $1.74 to $11.50.

Marcellus quotes were firm. Tuesday deliveries to Transco Leidy gained 9 cents to $1.40 and packages on Tennessee Zone 4 Marcellus came in 4 cents lower at $1.44. Dominion South next-day gas changed hands at $1.61, up 3 cents, although gas on Millennium fell 21 cents to $1.44.

Temperatures across the area were forecast to drop as much as 16 degrees for Tuesday. AccuWeather.com predicted that Monday's high in Boston of 38 would drop to 22 by Tuesday before recovering to 27 on Wednesday. In New York the high of 40 Monday was expected to fall to 29 Tuesday before climbing back to 31 Wednesday. Philadelphia's 37 high on Monday was anticipated to drop to 32 Tuesday and Wednesday, 8 degrees below normal.

Quotes in the Mid-Atlantic tumbled. Gas bound for New York City on Transco Zone 6 dropped $1.44 to $9.91 and deliveries to Tetco M-3 were seen 67 cents lower at $4.36.

AccuWeather.com meteorologists see warmer trends on the way. "Despite some pockets of cold air in the Midwest and East during the first part of this week, the wheels of change are already in the works for a mild weather pattern for the middle of January. The storm departing the Northeast will briefly pull cold air into the Midwest and Eastern states into Wednesday. However, the jet stream is about to lock out the cold for the third and much of the fourth week of the month.

"During next week, the jet stream will set up in such a way as to keep arctic air bottled up across central and northern Canada and will allow mild Pacific air to flow from west to east across much of the United States," said Paul Pastelok, AccuWeather.com long-range meteorologist.

"High temperatures may average 10 to perhaps 20 degrees Fahrenheit above normal in the northern tier states next week, compared to the 10 to 20 degree below normal temperatures during the first full week of January. In areas from Chicago to Boston and New York City, this will translate to multiple days with highs in the 40s F. In areas from Dallas to Atlanta, the upcoming pattern will bring highs in the 60s on at least several days. From Minneapolis to Buffalo, New York, highs will reach or exceed the freezing mark during a few days," AccuWeather.com said.

Midwest and Midcontinent zones declined. Next-day gas on Alliance shed 6 cents to $3.01 and deliveries to the ANR Joliet Hub eased 6 cents to $3.01. Gas at the Chicago Citygates changed hands at $3.00, down 6 cents, and at Demarcation Tuesday gas came in at $3.02, down 6 cents. Gas on Consumers retreated 2 cents to $3.02.

In the Midcontinent next-day quotes sagged as well. Gas on ANR SW was seen 4 cents lower at $2.82 and deliveries to NGPL Midcontinent Pool fell 5 cents to $2.79 and gas on NGPL TX OK was seen 6 cents lower at $2.83. Deliveries to Panhandle Eastern were flat at $2.82, and gas on OGT was a nickel lower at $2.80.

Futures traders see $2.50 in sight. "I think $2.75 will be initial support level and $2.50 below that. "We've got $3 on the upside to signify any meaningful movement higher, but we are a long way from that," said a New York floor trader.

Other forecasters corroborated the AccuWeather.com outlook. Overnight weather forecasts showed a broad expanse of above-normal temperatures near term. Commodity Weather Group in its Monday morning six to 10-day outlook showed above-normal temperatures from California to Maine and Texas to Canada. "Over the weekend, the modeling maintained very good consistency on a significant January thaw over the entire U.S. kicking off this weekend and dominating next week," said Matt Rogers, president of the firm.

"Some minor differences in details are noted, but the big picture of a widespread warm period carries improved confidence. The warmest anomalies are expected over the Midwest and Plains, but the East, South and West should also see significant below-normal demand. Unlike the warmth in December, though, this one is expected to be much shorter-lived. Most modeling offers consensus and consistency on returning Alaskan ridging by early in the 11-15 day with cold air transport first delivering impacts to the West first with a shift to the Midcontinent by mid to late period. The biggest debate seems to be timing as models vary on speed of cold air shifting east, but another issue could be typical 11-15 day underestimation of cold air outbreak intensities."

Tim Evans of Citi Futures Perspective calls the prospects for natural gas "mixed." In closing comments Friday Evans said, "colder temperatures [last] week and [this] expected to translate into some larger seasonal storage withdrawals, but only at near-average rates. The cold has not exactly been routine, but it does seem that way because the growth in supply offsets at least some of the increase in heating demand.

"It takes an even greater temperature variance to yield an above-average storage withdrawal. In the current cycle, we also note that the warmer than normal readings in the 11-15-day period will mean a quick transition to below-average heating demand and a return to below-average storage withdrawals."

Tom Saal, vice president at INTL FC Stone in Miami, in his work with Market Profile expects the market to test last week's value area at $2.970 to $2.860 before moving on and "eventually" testing $3.800 to $3.648. Saal has identified a third weekly value area at $4.345 to $4.125 and said, "Weekly value areas show a retracement rally should come eventually."

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