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Cold, Snow Prompt Northeast, Mid-Atlantic Market Gains; Futures Flounder

Next-day gas vaulted higher in Wednesday's trading as weather-driven gains posted by Northeast and East points led a broad-based charge higher. Only a few points lost ground and the gains were widespread. Overall the market rose 64 cents to $3.44.

New England and the Mid-Atlantic saw multi-dollar advances, with gas into New York City adding nearly $10. Producing zones and market zones to the West posted more moderate increases, with the Midwest, Rockies and West Texas struggling to add a nickel, while the Gulf rose about 7 cents.

Futures slumped as the longer term weather outlook, although cold, is not expected to have a meaningful impact on supply going into the injection season. At the close March had fallen 9.2 cents to $2.662, and April was down by 8.8 cents to $2.669. March crude oil was bludgeoned by an unsupportive Energy Information Administration (EIA) inventory report and fell $4.60 to $48.45/bbl.

Gas for delivery Thursday across the East rose sharply as near-term weather continued to buoy heating demand. Forecaster AccuWeather.com predicted that the high in Boston of 36 Wednesday would recede to 32 Thursday and then drop to 20 on Friday. The normal high in Boston is 37, and in the first four days of February Boston has received 16 inches of snow, or 24% of its normal moisture. Average temperatures have been 9.6 degrees below its seasonal average of 20.1 degrees.

The high in New York City Wednesday of 41 is forecast to plunge to 31 Thursday and reach 32 Friday. The normal high is 40.

Gas for delivery at the Algonquin Citygates jumped $4.08 to $12.30, and gas into Iroquois Waddington added $5.10 to $9.86. Deliveries to Tennessee Zone 6 200 L rocketed $4.41 to $12.54.

Gas bound for New York City on Transco Zone 6 outdistanced all market points with a $9.49 gain to $13.23, and gas into Tetco M-3 added $3.12 to $6.33.

Marcellus points managed to add more than a dime. Gas on Millennium rose 10 cents to $1.63, and deliveries on Transco Leidy added 12 cents to $1.38. Packages on Tennessee Zone 4 Marcellus changed hands 14 cents higher at $1.34, and gas on Dominion South rose 32 cents to $2.42.

Spot gas prices are likely to remain firm in the near term as "lucky" residents of New England and the Mid-Atlantic are to be on the receiving end of two weather systems for the next couple of days, an Alberta Clipper from the Midwest and a low pressure system from the Gulf. "Late on Wednesday, the clipper will be pushing out of the Midwest and moving into the Northeast, bringing minor snow when compared to the substantial snow totals of the last week or two," said AccuWeather.com meteorologist Courtney Spamer.

"After bringing drenching rain and thunderstorms from the Louisiana coast through the Florida Panhandle, the southern storm will slide into the Atlantic Ocean and up the Eastern Seaboard. Exactly how close to the coast this low tracks will determine how much snow falls from the mid-Atlantic coast to eastern New England.

"At this time, the forecasting team at AccuWeather.com anticipates that these systems will remain separate while snow is falling across much of the Northeast. The clipper system will continue to bring a wave of lighter snow from the Ohio Valley into northern parts of the Mid-Atlantic, but it will be pushed farther north as the Gulf Coast system advances northward, bringing a few snow showers from Long Island through most of southern New England Wednesday night into Thursday morning."

Gulf and Midwest points posted healthy gains. Next-day deliveries on Transco Zone 3 rose 7 cents to $2.73, and deliveries on Columbia Gulf Mainline were seen higher by 7 cents at $2.69. Gas at the Henry Hub rose 6 cents to $2.73, and packages at the Houston Ship Channel surged 7 cents to $2.59.

The increases at Midwest locations weren't too far behind. On ANR SW, Thursday packages were quoted at $2.42, up 4 cents, and gas at the Chicago Citygates added 5 cents to $2.80. At Demarcation, next-day deliveries rose a penny to $2.76, and gas at Northern Natural Ventura added 2 cents to $2.78.

In the West, a compressor outage on a major interstate pipeline wasn't seen as having much market impact. El Paso Natural Gas declared a force majeure as the result of an outage at the Waha Compressor Station, and the loss of up to 300 MMcf/d was expected to keep Permian Basin production less than last year's highs. According to reports, the station is expected to remain offline until March 31.

Market response was muted. A gas buyer for a Southern California independent power producer said "things are pretty tame out here, and market conditions are bearish. Forward basis has been depressed [from the backup of REX [Rockies Express Pipeline] gas, and we are pretty flush” (see Daily GPI, Jan. 30).

Thursday's EIA storage report should give traders a better idea of just how flush the overall supply situation is likely to be once the traditional withdrawal season ends March 31. Estimates of an ending inventory of 1.7 Tcf are in play, and in some corners that is considered burdensome as the market would have to confront much higher production rates going into the injection season.

Last year 259 Bcf was withdrawn and the five-year average stands at 165 Bcf. IAF Advisors forecast a pull of 111 Bcf and ICAP Energy is looking for a decline of 119 Bcf. A Reuters survey of 21 traders and analysts revealed an average 122 Bcf with a range of -104 Bcf to -141 Bcf.

Analysts suggest the February outlook may not be cold enough to make a meaningful impact on supplies and once the withdrawal season ends, the market is likely to be staring sizeable storage builds in the face.

"The outlook for the weather in February continues to show a pattern of limited cold, suggesting a more moderate outlook for heating demand," said BNP Paribas analyst Teri Viswanath, director of natural gas trading strategy, in a Wednesday morning note. "General guidance suggests a very stormy pattern along the East Coast, with expansive temperature differences between model forecasts due to tracks of these storms. Consequently, we expect that model volatility to continue as small changes in the path of a storm can result in large temperature differences. Overall, it still appears that the East Coast runs colder than normal, the West is above, and the Plains are caught in between, transitioning to the above-normal next week before dropping back below normal for the week of Feb. 16."

The way Viswanath sees it, the market is content to deal with the relative certainty of large, incremental production increases at the expense of the uncertainty of end-of-winter temperature patterns.

"Extreme variability in the short-term weather forecasts has failed to inspire confidence that heating demand will sufficiently pare inventories this season. With the trend in prices for 2015 largely determined by the mostly uncertain heating demand ahead, the market instead has focused on the mostly certain aspect of supply/demand balances, which is the incremental growth in domestic production. In our opinion, the 4.5 Bcf/d of incremental winter production suggests that a significant inventory surplus will build by the end of March."

Natgasweather.com in a Wednesday morning report said it expects a pattern of continued pulses of cold air, but questions just how much impact there will be on supplies and what kind of market effect there will be. At this point tapping into any pool of cold, arctic air seems off the table.

"So while we expect it will be active through mid-February with weather systems continuing to track across the country, more impressive blasts of Arctic air need to start showing up in the weather data, while also covering more U.S. territory for it to be significant.

"We don't think it's looking quite cold enough during mid-February to warrant a sustained and prolonged rally and expect any decent price strength will be viewed as an opportunity by big players to again short the markets."

INTL FC Stone Vice President Tom Saal in Miami, said Tuesday’s “Market Profile was a double distribution trend day pattern [with a] large price range. Key next-day strategy after a trend day is to 'fade' the opening to at least unchanged, [and it] looks like a lower opening is in the cards." That would mean buying the lower open for a quick trade as the market presumably moved back to unchanged, he said.

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