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NatGas Cash, Futures Down Again, But Trader Sees $3.50 Futures by June

Weakness on the demand front continued to erode not only near-term physical, but also financial natural gas prices on Tuesday.

A few physical points managed gains of a penny or two, a few locations were unchanged, and most points experienced losses of a few pennies to a nickel or more. Larger losses in the Northeast pulled the NGI National Spot Gas Average down 6 cents to $2.79. A weak power environment made incremental purchases of natural gas for power generation unattractive as well.

Futures continued to work lower, putting in a new move lower to $2.887 before March ended trading at $2.905, down 3.9 cents on the day. April shed 2.7 cents to $2.986. March crude oil rose 27 cents to $53.20/bbl.

Futures traders see a recovering market. "I think we have come down too far too fast," said Alan Harry, principal with Harry's RE Trust. "I think there is still some cold winter, not much, but some. The biggest thing I am looking at is the supply that is coming into the market is not as high as it should have been. Because of that it says to me that there is still going to be pressure on the supply-demand part of natural gas, and I see us heading back up come June.

"$2.85 to $2,.90 was my target area for the downside, and I am a scale-in buyer. I think we will get up to $3.27 in the March contract and the equivalent of $3.50 when June goes off the board.

"There are over 300,000 speculative longs in the market, but what most people are not talking about is that the longs are longer dated. It's not 300,000 longs sitting in March, but these are out in Cal 2017 and Cal 2018, and a little beyond. Not only are these long-term players, but for Cal 2018 they are not in the market at such a bad level. They can hold on for a longer period.

"There was a lot of talk with the market collapse that they all ran for the door at one time [sold]. I heard that from a number of sources, but research showed that most are in contracts further out. They can take some pain on the downside if they need to. The breakdown was not a mass washout; it was kind of orderly."

When trading opened up, traders had to confront a new set of forecasts showing still milder weather conditions.

Weather models overnight continued the trend of increasing warmth, and traders are looking for ongoing volatility. "[Tuesday's] 11-15 day forecast is warmer over the East and northern tier when compared to yesterday's forecast," said WSI Corp. in its Tuesday morning report to clients. "The West and south-central U.S. are cooler. CONUS GWHDDs are down six for days 11-14 and are forecast to be 107.1 for the period. These are 18.2 below average."

Risks to the forecast include a "shift toward a negative PNA [Pacific North American pattern] and the bulk of the model guidance offers a minor cooler risk and trend with the forecast across the CONUS, especially across the north-central U.S."

Others see continued price weakness. "This market is currently posting lowest levels in almost three months and appears capable of further declines before the next significant support begins to develop at about the $2.80 area," said Jim Ritterbusch of Ritterbusch and Associates in a Tuesday morning report to clients. "Updates to the short term one- to two-week temperature views that are beginning to stretch through month's end are not yet showing much shift away from above normal trends that will be translating to smaller than usual seasonal storage draws.

"This implied expansion in the supply surplus is a major bearish market dynamic that will only be reversed by a major shift in the weather views. But with the arrival of March, temperature deviations from normal will be exerting less impact on HDDs than was the case last month and with season-ending supply acquiring some clarity, the process of piecing together meaningful price advances of 25-30 cents will become heavily reliant upon non-weather factors."

In physical market trading a weak power market made purchases for gas-fired power generation uninspired. Power loads were forecast to ease Wednesday before staging a slight recovery Thursday. New York ISO predicted that peak load Tuesday of 20,565 MW would ease to 20,326 MW Wednesday and make it back up to 20,831 MW Thursday. ISO New England calculated peak load Tuesday of 17,800 MW and that was forecast to slide to 17,500 MW Wednesday and inch up to 17,550 MW Thursday.

Gas at the Algonquin Citygate slumped $1.15 to $3.70, and deliveries to Iroquois, Waddington skidded 22 cents to $3.23. Gas on Tennessee Zone 6 200 L was quoted 78 cents lower at $3.94.

Farther south declines were not quite as pronounced. Gas on Texas Eastern M-3, Delivery fell a nickel to $2.74, and gas headed for New York City on Transco Zone 6 eased 2 cents to $2.88.

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Next-day peak power softened as well. Intercontinental Exchange reported on-peak Wednesday power at the ISO New England's Massachusetts Hub fell $7.46 to $33.25/MWh and Wednesday power at the PJM West Hub gave up 19 cents to $30.08/MWh. On-peak power at the New York ISO's Zone G delivery point (eastern New York) fell 65 cents to $36.35/MWh.

Major market hubs retreated. Gas at the Chicago Citygate lost a penny to $2.85, and gas at the Henry Hub lost a nickel to $2.86. Parcels on Panhandle Eastern changed hands at $2.65, down 2 cents, and gas priced at the SoCal Border Avg. shed 4 cents to $2.76.

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