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Initial Aftermarket Losses Likely to Continue

The March aftermarket began Tuesday pretty much the same as February's daily market ended -- with sizeable losses across the board. Prospects for any significant recovery in cash prices are dim, with relatively light heating load for the foreseeable future, natural gas futures continuing to fall to levels not seen in nearly a year and abundant amounts of gas in storage -- much of which must be used or go into the general market within the next month or so.

Many points in the Midcontinent and West are now averaging solidly below $6, and sub-$5 quotes are likely to start showing up soon in the Rockies if the current softening trend is not interrupted. Northeast citygates led Tuesday's plumbing of further cash market depths amid overall losses ranging from about 20 cents to a little more than 80 cents.

While sources are hesitant to predict an outright market crash in the near future, quite a few anticipate fairly steady price erosion as a quickening pace of storage withdrawals comes up against what is likely to be a general dearth of heating load. Localized pockets of cold weather could create isolated rallies, said one, but those are likely to be limited and of short duration.

Some analysts see the possibility of screen support returning for cash prices (see futures story), but even if natural gas futures should rally, it's questionable whether that could offset the negative fundamental influences of mild weather and plentiful storage.

Western markets are seeing a mild conflict of supply issues. The PG&E citygate recorded one of Tuesday's smallest declines as the utility's California transmission system did not issue an OFO but projected its linepack slipping below minimum target levels Thursday and Friday. On the other hand, Kern River reported high linepack systemwide Tuesday, and Westcoast maintained a long-standing imbalance tolerance range that encourages drafting of its system.

Substantial heating load will remain scarce Wednesday outside of the Canadian border sections of the Plains and Upper Midwest, the upper half of the Northeast and in the West's mountainous areas. Mild conditions in the South and much of the lower West will continue to belie the fact that the official end of winter is still three weeks away.

A Northeast marketer said he was unaware of anyone still trading March baseload Tuesday. The screen was still going down and taking cash with it, he added. However, he contended that even though regional citygates were taking big literal losses, they continued to maintain "healthy" basis spreads of 60 cents or so to more than a dollar above the Henry Hub. That indicates market-area pricing is relatively stronger than quotes for the production area, he said.

But it looks like little more than a week of cold weather remains for the Northeast, and then basis spreads should begin tightening considerably, the marketer went on. Even now market-area heating demand isn't all that great, he said. "I don't think we're ever going to see again the $5-10 spreads" that occurred at times last year, he said.

The National Weather Service (NWS) predicts colder than normal temperatures during the March 6-10 workweek everywhere east of a line running northward from the southeast border of Louisiana along the western edges of Mississippi, Tennessee and Kentucky before curving through eastern Indiana into the eastern border of Michigan. It also expects below normal readings in Washington state, Oregon and all but the eastern edge of California. NWS looks for above normal temperatures throughout New Mexico, the eastern half of Arizona, southeast Utah, all of Colorado except its northern corners, the Oklahoma Panhandle and all but the eastern quarter of Texas. Its forecast also includes above normal conditions in Minnesota, the eastern half of North Dakota, the northeast corner of South Dakota, the northern edge of Iowa and all but the southeast corner of Wisconsin.

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