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Next Day CA NatGas Prices Jump On Cooldown; Futures Keep Partial Gains

Physical natural gas for next-day delivery bounced higher Monday led by strong gains in West Coast and Rocky Mountain quotes. Southern California heating load prompted double-digit gains across southwest market points and prices at Rocky Mountain points were not far behind.

The NGI National Spot Gas Average rose 9 cents to $2.03, but California gains were closer to a quarter. Eastern points were up over a dime. At first physical traders derived some inspiration from a strong screen as December natural gas futures traded up to $2.423 in early session activity. By the close, December had retreated and closed at $2.385, up 2.4 cents and January was higher as well gaining 2.8 cents to $2.554. December crude oil added $1.00 to $41.74/bbl.

California and Rocky Mountain next-day gas jumped higher as heating load surfaced Monday. Forecaster AccuWeather.com predicted a high of only 61 for Burbank, CA on Monday followed by a high Tuesday of 73 and Wednesday of 78. The normal high in Burbank is 73. San Diego's Monday high of just 63 was seen bouncing back to 70 Tuesday and 75 on Wednesday, well ahead of a seasonal high of 69.

Next-day gas at the PG&E Citygate rose 16 cents to $2.87 and deliveries to the SoCal Citygate gained a stout 36 cents to $2.66. Deliveries to the SoCal Border Avg. added 32 cents to $2.41 and packages on El Paso S. Mainline/N. Baja came in 29 cents higher at $2.38. Next-day gas on El Paso Permian was quoted 20 cents higher at $2.10.

Rocky Mountain gains were not far behind. Gas at the Cheyenne Hub was 11 cents higher at $2.05 and deliveries to Opal added 21 cents to $2.23. Kern River deliveries were seen 20 cents higher at $2.20 and gas on Transwestern San Juan jumped 25 cents to $2.16.

"It is a little cold, and there is actual heating load," a gas trader for a San Diego-based independent power producer told NGI. "We are seeing a pickup in actual heating burn, but power load isn't that great."

"We've been seeing about 2.5 Bcf/d for the SoCal system and just over the last few days it has picked up to a peak of just over 3 Bcf/d. That's about .2 Bcf/d over what is coming into California," he said.

That same cooldown in California was expected to wreak havoc further east. "The second storm in less than a week will hit Colorado and parts of Nebraska and Kansas with blizzard conditions and dangerous travel during Monday night and Tuesday," said AccuWeather.com meteorologist Jordan Root.

"The storm has the potential to bring a foot of snow not only to the central Rockies, but also to a large part of the adjacent High Plains. Cities that will be hit hard by snow and wind include Denver, Colorado Springs and Pueblo, CO; Cheyenne, WY; Goodland, KS; and North Platte, NE."

Longer term weather forecasts are beginning to show the emergence of Old Man Winter. Weekend weather runs continued Friday's trend and showed cooler, if not significantly colder, temperatures ahead. Commodity Weather Group in its Monday morning outlook said, "After some colder changes began showing up stronger on Friday, the models mustered more momentum in that direction over the weekend to set up a colder final one-third of the month ahead for much of the U.S. Colder anomalies are seen at times coast-to-coast as we watch a series of two to three cool to cold outbreaks affect the forecast starting later this week and carrying through the 11-15 day time frame.

"While our outlook leans toward the more cautious (less cold) European ensembles, upper-level pattern signatures suggest that colder models like the American and Canadian versions could very well verify better, so we keep colder risks higher than warmer risks overall today," said Matt Rogers, president of the firm.

Risk managers have started to build a long market position. Mike DeVooght of DEVO Capital said in a weekly letter to clients that "On a trade basis, we have been looking for an opportunity to get long the natural gas market. We started to buy the January contract at $2.50 (light position)."

January natural gas settled Friday at $2.526.

"The weekly storage number showed a slightly higher than anticipated build, which helped to support the market later in the week," DeVooght said. "Over the next two weeks, we will experience some of the first colder than normal temperatures. Most of the colder than normal weather will be in the Western half of the country. As we look forward to the heat season, which can often be supportive to the gas market, demand expectations have been ratcheted lower because of the El Nino."

For trading and end-user accounts DeVooght advises holding a long January position at $2.50. For producers he suggests standing aside.

Not all are looking so favorably on the market. Randy Ollenberger, an analyst with BMO Nesbitt Burns, in looking at Friday's Energy Information Administration storage build of 49 Bcf said, "We believe the storage report will be viewed as positive, given the injection was below expectations. However, we see few positive catalysts for natural gas prices over the coming months."

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