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Most Points in Surprising Rally; Storage UP 1 Bcf

Traders had suggestions but were unable to come up with a convincing explanation for why prices rose, often substantially, at most points Thursday after so much preceding bearishness about lack of heating load and a steep screen slide that extended into its third day.

Several flat numbers and declines of up to about 20 cents were interspersed among gains ranging from a nickel or so to about half a dollar.

The Energy Information Administration (EIA) threw a wicked curveball at the market in reporting a net 1 Bcf storage injection -- yes, you read that right; injection, not withdrawal -- for the week ending Dec. 30. The East Region's pull of 19 Bcf was slightly outweighed by builds of 8 Bcf in the West Region and 12 Bcf in the Producing Region. The report obviously was highly bearish in comparison with majority prior expectations centered on a withdrawal of 50-70 Bcf. However, at least a couple of analysts came much closer to predicting the actual results of EIA's survey: Bentek Energy called for a withdrawal of 10 Bcf and accurately pegged the western injection of 8 Bcf, although it expected a Producing Region pull of 2 Bcf; and Citigroup's Kyle Cooper drastically lowered his initial prediction to a final estimation of a 12-22 Bcf pull.

Despite rumors of a potential revision because the small injection did not jibe with any prior expectations (see futures story), Nymex traders had a decidedly negative reaction in sending February futures down 69.8 cents to $9.499. It was the first prompt-month daily settlement below $10 since the September 2005 contract closed at $9.792 on the trade date of Aug. 26.

The report tended to confirm suspicions by a couple of NGI sources that storage plays (buying physical gas for injection while selling February or March futures) were a significant factor in last Thursday's unexpected cash market rally in the face of mild weather fundamentals (see Daily GPI, Dec. 30, 2005).

Although the general feeling was that moderate weather continued to be unsupportive of gas prices in most areas, some snowfall was occurring from the Great Lakes region through upper New England, and the South was due to feel some temperatures Friday that more closely resemble winter than earlier this week. Houston-area traders could tell there was a change; midday weather that had been appropriate for wearing short-sleeve shirts through Wednesday was requiring a jacket or sweater Thursday.

But the little hints of winter failed to obscure the fact that temperatures are still above seasonal norms for the most part.

Thursday's overall bull market was perhaps most perplexing in the West, where cold and snow is generally limited to mountainous areas currently. Somehow the western upticks occurred even with excess linepack issues continuing to concern Northwest at its northern end, Kern River and Westcoast.

Had the weather gotten significantly colder than last week's forecasts indicated? Not so, according to a Calgary-based producer. "If anything, the forecasts were very correct on mild weather this week," he said. He suspected that most cash locations got bid up Thursday because their prices had gotten so low recently. Also, if traders have flexible storage, such as in Gulf Coast salt dome facilities, that might be setting a price floor, he suggested. He noted that in the Midwest, where most citygates were flat and Chicago fell nearly a dime, storage facilities generally require near-full cycling of accounts each year. He said it was "amazing" to have the Calgary area as "warm" as about 45 degrees F Thursday.

On the storage issue, the producer said he thought the EIA number was "extreme, but probably correct because we were among the ones injecting last week."

A Gulf Coast trader also tended to dismiss rumors of a possible revision, saying, "I'm not convinced that the storage number isn't correct; there just wasn't any weather load last week." On Thursday's overall price rally, she wondered if it could be that cash prices had fallen too low and this was a "correcting" rebound. She also mused about whether storage plays, which were given some credit for the previous Thursday's rally, might have returned. But that was kind of hard to believe, she went on, because even two months into the withdrawal season there's very little space for injections. Some of her producer clients have been telling her that they're way behind in withdrawal schedules for their accounts.

A Gulf Coast producer initially said he had "no clue" on higher cash numbers, but then suggested that mabye it was a move toward more cash-futures convergence? It certainly had that effect, as the screen dive and Henry Hub's flat position brought them to just over a quarter apart Thursday. On Wednesday the screen had been just a nickel shy of holding a dollar premium over the Hub.

A Southern utility buyer expressed concern about the inability of NGI or other index publisher to provide any Trunkline indexes in Louisiana for the past two months. His company and trading counterparties were able to work around the situation for December using Nymex ClearPort as a substitute, but ClearPort wasn't suitable in repeating the process for January, he said. He said he is still trying to find a workaround solution with suppliers. Otherwise, his utility is just waiting for cold weather to increase system throughput; it was a little chillier Thursday than before but not enough to boost heating load substantively, he said.

The National Weather Service's (NWS) forecasts are getting even more bearish for gas. In its six-to-10-day outlook for the Jan. 10-14 period, NWS expects above normal temperatures to pervade nearly all of the Lower 48 states. The only exception where normal conditions are predicted are Florida, extreme southeast Louisiana and the southern edges of Mississippi, Alabama and Georgia.

With 48 companies reporting to it, Minerals Management Service (MMS) said hurricane-related shut-ins the Gulf of Mexico totaled 1,878.66 MMcf/d Thursday. That represented a drop of 75.36 MMcf/d from the previous Thursday. MMS counted 101 platforms as still evacuated and said cumulative deferred production since Aug. 26 -- when the massive shut-ins were just starting as Hurricane Katrina approached -- had reached 574.210 Bcf, or 15.732% of the Gulf's normal annual production of about 3.65 Tcf. MMS will resume twice-weekly reports on Monday after having omitted them for the past two Mondays because of holiday conflicts.

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