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New Cold Blasts Fail to Avert Overall Softness

Despite new bouts of colder weather approaching in some areas and pipelines reintroducing OFO-like actions or pleading for shippers to stay in balance, prices softened Monday at a large majority of points. Strong increases at New England citygates (handily topped by Iroquois Zone 2's $2.75 gain) and smaller ones at a couple of other scattered points ran against the grain of overall declines ranging from about a nickel to 40 cents.

Winter storms are forecast for Tuesday in the Midwest and much of the Northeast, while the South will be turning cooler more gradually this week. Outside the upper half of the western U.S. and Western Canada, temperatures will tend to be normal to a little above normal in much of the West.

Although weather fundamentals will be growing a bit stronger as the week progresses, cash prices will be hard-pressed to rally after Monday's extreme weakness in Nymex's energy futures complex, which featured the March natural gas contract dropping 60.1 cents lower to $7.226 while March crude oil slipped $2.08 to $57.81/bbl.

Northern Natural ended a System Overrun Limitation for one segment Sunday, only to call a new one for all market-area zones Tuesday (see Transportation Notes). Southern Natural Gas said it was "highly likely" that it would issue a Type 6 OFO for short imbalances Wednesday and Thursday. But even with the OFO potential, Southern recorded the biggest loss of the day. Several other pipes posted cautionary notes about protecting system integrity by avoiding substantial imbalances.

Occidental Petroleum (Oxy) had announced that steps are being taken in collaboration with regulatory officials, including California's Division of Occupational Safety and Health, to resume production at the producer's Elk Hills, CA, operation following a Feb. 6 rupture of natural gas gathering lines and a resulting fire. About one-half acre of the 75-square-mile oil and natural gas field was directly impacted. Apart from the affected gathering lines, no other production or processing facilities were damaged, Oxy said. It had estimated last week that about 288 MMcf/d of gas production was affected (see Daily GPI, Feb. 9). A call for a status update Monday was not returned.

"I can't believe" such a big drop in futures with more cold approaching, a Midcontinent producer said. However, he said an LDC in the Lower Midwest had told him it's expecting warmer weather down the line, perhaps in as little as a week. "As far as they're concerned, winter ends" around the middle of February, he continued.

The producer saw a chance of cash bouncing back based on the falling temperatures in northern market areas, but said the general market attitude for now is mostly bearish. Most of the Midcontinent traded on either side of $7 Tuesday, he added. He himself did very little trading because of being out of town visiting customers. "I'm kind of old-fashioned" in wanting to keep up face-to-face acquaintanceships with trading counterparties, he said.

On the other hand, a Calgary-based producer professed to be "not really that surprised" by the massive weakness at Nymex, "not after seeing the weather forecasts over the weekend" calling for more weather moderation sooner than previously expected. Chicago conditions now are looking more like 30-degree averages in the last half of the month instead of 15 degrees, he said.

In contrast to the massive negative price activity at Nymex, the Calgary producer said he found the cash market "fairly quiet." There are no significant transport constraints in the Midcontinent/Midwest market currently other than the one on Northern Natural, he said, but added that he wouldn't be surprised to see more pop up in the next couple of days.

He was a little more optimistic about a price rebound than his Midcontinent counterpart, saying, "Yeah, I do see a decent chance of cash rallying based on weather" in spite of the huge futures decline.

Broker Jay Levine of enerjay LLC said he's looking for a 250 Bcf storage pull to be reported for last week, "and I wouldn't be surprised if you saw an all-time record high withdrawal, eclipsing the 1997 high of 260 [Bcf]."

Baker Hughes reported a large gain of 27 drilling rigs actively searching for gas in the U.S. during the week ending Feb. 9 (http://intelligencepress.com/features/bakerhughes/). That brought the gas seekers up to 1,473, Baker Hughes said, compared with 254 drilling for oil (down 10 from the previous week).

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