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Northeast Weakness Buoyed by Broader Strength; Futures Meander Higher

With the exception of a few East and Northeast points, next-day gas staged a strong performance Tuesday as weather-driven gains in the Midwest and Great Lakes outdid New England and Mid-Atlantic weakness.

The Northeast was expected to see moderating temperatures Wednesday, and both power loads and prices subsided. Producing zones such as the Gulf Coast, Midcontinent and Rockies showed solid gains. The overall market advance was 3 cents to $3.26. Futures managed to drift higher. April added 1.4 cents to $2.712, and May advanced 1.2 cents to $2.751. April crude oil gained 93 cents to $50.52/bbl.

Next-day gas in New England and the Mid-Atlantic retreated as power loads and prices were predicted to fall from Tuesday's levels. ISO New England predicted that peak loads at the Massachusetts Hub Tuesday of 18,660 MW would ease to 17,550 MW Wednesday before climbing back to 18,480 MW Thursday. The New York Independent System Operator forecast that peak load Tuesday of 21,946 MW would drop to 20,823 MW Wednesday and reach 21,643 MW Thursday. Across the PJM footprint, the ISO forecast that maximum load Tuesday of 42,364 MW would fall to 39,564 MW Wednesday before climbing back to 43,531 MW Thursday.

Parcels at the Algonquin Citygate for Wednesday delivery tumbled $5.32 to $7.13, and gas at Dracut shed $5.04 to $6.66. Gas on Tennessee Zone 6 200 L tumbled $3.04 to $7.01.

Gas in the Mid-Atlantic didn't take quite such a fall. Gas on its way to New York City on Transco Zone 6 fell 67 cents to $3.82, and Tetco M-3 deliveries were up a penny at $3.02.

In the Marcellus, prices firmed. Gas on Millennium added 3 cents to $1.47, but packages on Transco Leidy rose by 14 cents to $1.33. Next-day deliveries on Tennessee Zone 4 Marcellus changed hands 12 cents higher at $1.24, and gas on Dominion South came in 14 cents higher at $2.19.

Next-day peak power prices were hardly conducive to incremental purchases of natural gas for power generation. Intercontinental Exchange reported that peak power Wednesday to the ISO New England Massachusetts Hub dropped $39.76 to $67.06/MWh and peak power deliverable to the New York ISO's Zone G (eastern New York) terminal skidded $11.00 to $62.00/MWh. Next-day peak power at the PJM West delivery point fell $8.80 to $40.46/MWh.

Behind it all was weather. Along the Atlantic Seaboard temperatures were expected to make a stout one-day jump before sliding back to more refrigerated conditions Thursday. AccuWeather.com forecast that Boston's Tuesday high of 32 would warm to 44 Wednesday before dropping back to 28 Thursday, a frosty 14 degrees below normal. New York City was expected to see its 31 high Tuesday jump to 44 Wednesday before falling back to 29 Thursday. The seasonal high in New York is 46. Washington, DC's Tuesday maximum of 37 was anticipated to rise to 49 Wednesday before retreating to 36 Thursday, a hefty 16 degrees below normal.

The National Weather Service in New York City said, "deepening low pressure tracks across eastern Canada tonight into Wednesday...preceded by a warm frontal passage late tonight. The trailing cold front crosses the area Wednesday night...with weak waves of low pressure riding along it into Thursday. High pressure then builds in from the west into Friday. A series of weak cold fronts cross the region this weekend into early next week."

Weather-driven price advances were the rule in the Great Lakes. Wednesday packages on Alliance gained $1.38 to $4.60, and at the ANR Joliet Hub gas was quoted at $4.55, up $1.33. Parcels at the Chicago Citygates rose by $1.26 to $4.32, and at Demarcation gas was seen $1.19 higher at $4.29.

AccuWeather.com forecast that Tuesday's high of 39 in Chicago would drop to a frosty 21 Wednesday before falling further to 17 Thursday. The normal high in Chicago in early March is 42. Detroit's Tuesday high of 38 was seen sliding to 31 Wednesday and 19 on Thursday, a bone-chilling 19 degrees below normal.

Forecasters are still anticipating cold incursions, but analysts see diminishing temperature-related impacts going forward. "The latest weather data continues streaming in, and there are a few minor changes showing up. An active and exciting weather pattern is still on track this week as the last in a series of Arctic blasts sweeps across the central, southern and eastern U.S.," said Natgasweather.com in a Monday update. "It will be quite mild over the eastern U.S. the next few days ahead of the Arctic front, with many locations reaching the upper 60s and 70s over the Southeast, with 40s and 50s over the Northeast.

"There will still be additional weather systems grazing the upper Great Lakes and Northeast with sub-freezing temperatures into next week, which the weather data has trended slightly colder on, particularly around March 10th, which would still drive relatively strong heating demand. We expect high pressure to shift out of the West and into the central U.S. around then as well, which would result in temperatures warming above normal after March 11th, with warming then spilling into the eastern U.S. by the 13th to significantly ease national heating demand."

Steve Mosley, an Arkansas-based commodity trading adviser, sees the recent February cold as limiting downside price damage. "Unless March plays out brutally cold also, we still look for our winter decline to extend somewhat further on the next extended warm-up, but we are inclined to think the effects of the February cold on storage has essentially 'saved the day' for near-term pricing and will limit such new downside to the $2.20-2.55 range," he said in a first-of-the-month report.

That cold, however, is not enough to avert longer-term price weakness. "[W]e don't think pricing will get low enough by March 31st to cause the necessary amount of tightening in the supply/demand balance beyond April 1st...We view the supply-demand balance as needing tightening to where it is slightly tighter than last year's injection season balance to avoid over filling storage.

"As such, after a rather lackluster pre-summer rally into perhaps the early portion of the May-June time frame, we think the market is likely to experience another good decline into the June-September summer seasonal time frame that will result in even lower prompt month pricing (than we will see here in the winter time frame) in order to bring about the necessary tightening."

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