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Price Gains Continue Even With Light Heating Load

Purchases for storage injection plays remained the best conjecture that sources could come up with for another day of rising prices at nearly all points Thursday. Heating load remains abnormally light in most areas outside the Rockies, Western Canada and Upper Plains, and attitudes about high storage levels are still bearish.

A couple of flat to slightly lower points averted across the board gains. The increases ranged from a little less than a nickel to about 35 cents, and as on Wednesday were largest in the Rockies.

More than one trader was puzzled about how the cash price strength could continue in the face of widespread mild weather, especially following a 13.6-cent drop in February futures Wednesday.

It was fitting that with a low of 50 and a high of 60 forecast for Friday in New York City, Transco's Zone 6-NYC pool was a rare point that appeared to be behaving properly with regard to fundamentals in falling about a nickel.

Despite the Rockies having the greatest current concentration of heating load (Denver has a low of 10 degrees forecast for Friday) and Thursday's biggest price increases, Kern River was reporting high linepack systemwide Thursday. And although it did not issue another high-inventory OFO, PG&E projected linepack near its maximum target levels through the weekend.

An Enterprise Products Partners spokesman said 110 MMcf/d of production offshore southeast Texas has not been flowing into the High Island Offshore System since a rupture was discovered on the High Island Pipeline System (HIPS), a crude oil line that also carries associated gas (see related story). A news story last week had pegged the shut-ins at 140 MMcf/d (see Daily GPI, Dec. 28, 2006).

A Midcontinent producer confessed that no, he didn't really have any good explanation of why prices were rising again. "Storage injections, I guess," he continued. Weather-related demand in the Midwest market area is still very low, and Chicago is much milder than usual for early January, a time when many residents would have aching backs from shoveling heavy snow, he said.

"We're a little perplexed about why prices were so strong" both Wednesday and Thursday, the producer said. The post-New Year's Day market is still pretty slow, as not everybody seems to have returned from holiday vacations yet, he added.

A Midwest marketer speculated that maybe prices were up again because people are trading on the expectation that significant colder weather may be coming to northern market areas by mid-January, although that would belie earlier forecasts that those market areas would still be moderate at that point. There was a mention of possible snow in the Michigan forecast for Monday, she said, and the Midwest should be turning colder early next week.

Stephen Smith of Stephen Smith Energy Associates expects a storage pull of 68 Bcf to be reported for the week ending Dec. 29. That is a revision from a previous estimate of 78 Bcf, he told clients in an e-mail Thursday. He gave two reasons for the change: "1) We spent considerable time making some changes to our model since our original forecast was issued;" and "2) The EEI [Edison Electric Institute] number came in weaker than we expected." EEI provides estimates of weekly power usage, Smith told NGI, and when the latest estimate was considerably lower than expected, it made sense to reason that gas-fired peaking units were among the first to be shut off.

The Reuters survey of 20 industry players found an average expectation of a 56 Bcf withdrawal. Estimates ranged from 33 Bcf to 82 Bcf, the news service said.

Jim Osten of Global Insight looks for a 52 Bcf draw. That would reduce the year-on-year surplus since the comparable year-ago report was a 1 Bcf injection, but falls far short of the five-year average withdrawal of 90 Bcf, Osten said.

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