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Pricing Mixed as Market Braces for Frigid Week

Conflicting influences led to mixed prices Friday that were mostly higher in the East and mostly lower in the West. The negative factors of a prior-day drop of nearly half a dollar in February futures, moderate Saturday-Sunday weather in much of the East and the extra loss of industrial load over a holiday weekend were offset to a great extent by forecasts of severe cold in many areas starting early this week and renewed Nymex support Friday.

Quotes ranged from flat to up about half a dollar and down about 40 cents. Although many of the largest declines occurred in the Rockies/Pacific Northwest, Cheyenne Hub led the majority price climb, which one source attributed to the point's ability to serve not only Rockies-area demand but also Midwest/Midcontinent load through interconnecting transportation eastward.

The West and sections of the Midcontinent and Midwest were already in deep-freeze mode by Friday. Even the normally mild desert Southwest was in for some shivering as freezing morning lows would threaten agriculture in Southern California and southwest Arizona both Saturday and Sunday, according to The Weather Channel.

Harsh conditions were due to engulf the rest of the Midwest over the weekend. Although a cold front was predicted to move into the Northeast during the weekend, the region was not expected to see really severe weather until early this week. The forecast for the South was for mostly spring-like weather to endure through Saturday and Sunday before the stormy cold front that was making its way eastward from the Pacific Northwest last week begins to arrive Monday and early Tuesday.

A rising cash market Tuesday is almost guaranteed, as cold temperatures will be in effect nearly everywhere for much of this week and the February futures contract returned to being supportive with an increase of 30.9 cents Friday.

Although OFO-like actions were scarce Friday, many pipelines either were issuing warnings about their deliverability being strained in the coming week or had already posted such cautionary notes. Make-up nominations for due-shipper imbalances are banned for the time being on a number of systems. CIG in particular was anticipating a challenge (a low of minus 5 degrees was forecast for Denver Saturday) and mentioned that supplies could be constrained by wellhead freeze-offs.

Although it had not issued an OFO or posted an update as of late Friday afternoon, Southern Natural Gas had said Thursday that a Type 6 OFO was "highly likely" for long imbalances Saturday and Sunday.

A Midcontinent/Midwest marketer observed that not all that many traders were leaving their offices early as usually happens on the Friday preceding a holiday weekend. That was because quite a few companies, including his, would not be taking off Monday for Martin Luther King Day. After being out sick through Thursday, he confessed to being surprised by Friday's mixed quotes. "I fully expected to come in today and see big gains" due to the weather forecasts for this week, he said.

He noted that the Chicago market hadn't gotten especially cold yet as of Friday but would do so over the weekend. It looks like a strong weather-driven market is in store this week, he said, but price firmness could be tempered because "there's a lot of [storage] gas still in the ground." For most utilities, their design peak day is Jan. 15, he added. "If you don't get much cold before then, most people consider the winter essentially over."

The marketer said the "only good thing for me" out of this cold-driven market is that Chicago-area LDC Nicor had lifted its delivery caps. He explained that his company was not making many more sales than usual because buyers were increasingly resorting to pulling storage. He considered it surprising that his company didn't get very many requests Friday for one or two-day (Monday and/or Tuesday) deals. "We did a few, but not as many as I had expected."

Western markets tended to be mostly softer based on the Nymex drop Thursday, a marketer in the region said, adding that obviously there was still a lot of heating demand around. He reported being aware of "a few" freeze-offs already occurring in the Rockies, but said it was "mostly smaller guys."

The marketer noted that the last IntercontinentalExchange deal of the day at Opal was for $6.45, which also was the point's high, indicating rising prices as trading went on. A few other points also tended to go up, but that was not the case for every western location, he said. "We're still pulling out of storage at these [price] levels," he said, because current spot prices are ahead of next-month numbers, although the spreads were shrinking. Regional trading volumes were down because transport spreads were tightening to nearly zero, he added.

A Midcontinent producer commented that freezing temperatures and icy conditions had arrived earlier in his region than in the rest of the East. Intrastate Oklahoma pipe Enogex had cut his four-day supply nominations by 15% Friday in anticipation of potential wellhead freeze-offs. Enogex wanted to avoid imbalance problems over the weekend, he said.

SunTrust Robinson Humphrey/the Gerdes Group gave an early estimate of the next storage report, saying last week's cooler temperatures compared to previous weeks suggested a preliminary 85 Bcf withdrawal, "below the 116 Bcf long-term average withdrawal."

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