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Overall Strength Offset By Eastern Drops; Futures Add A Nickel

Physical gas for weekend and Monday delivery on average was unchanged in Friday's trading, and although most points showed gains of a nickel or more, forecasts of mild temperatures in New England and at eastern points prompted double-digit declines and offset what otherwise was broad market strength.

Midwest, Gulf, and California firmness was countered by soft prices along the Eastern Seaboard. At the close of futures trading December was up 5.5 cents to $3.660 and January gained 5.3 cents to $3.708. December crude oil added 8 cents to $93.84/bbl.

Prices firmed across the Midwest as cold weather was anticipated to rip through the area. "A new sweep of cold air will race across the Midwest this weekend and will reach the East and South later on Monday," said AccuWeather.com meteorologist Alex Sosnowski. "While the air coming in next week will not be as cold as last week, it will shave temperatures by 20 to 30 degrees Fahrenheit off weekend highs in the 60s and 70s in the Midwest. The colder air will follow a dose of rain and gusty, locally damaging winds across the Midwest this weekend and the Appalachians and East Coast Sunday night into Monday."

"The core of the Arctic air will stay north over the Canada border over the Plains and generally north of the Great Lakes and the St. Lawrence Valley farther east. However, it will get cold enough for a round of lake-effect snow. The combination of wind, chilly air and other factors will make for wind chill temperatures 10 to 20 degrees lower than the actual temperature from the Upper Midwest and Northeast, southward along the Atlantic coast to part of the Deep South."

Chicago's Friday high of 50 was expected to rise to 59 Saturday before plunging to 43 on Monday, according to AccuWeather.com data. Milwaukee's Friday high of 54 was anticipated to hold Saturday before dropping to 40 Monday. The seasonal high in Chicago is 50 and Milwaukee 46. Detroit's Friday high of 51 was expected to rise to 55 on Saturday before retreating to 46 on Monday. The normal high in Detroit in mid November is 49.

Gas for the weekend and Monday on Alliance was quoted at $3.61, up 6 cents, and deliveries to the Chicago Citygates rose 7 cents as well to $3.53. At Northern Natural Ventura packages were seen at $3.57, nine cents higher, and at Demarcation weekend and Monday gas came in at $3.55, up 10 cents.

Major price drops were seen at points in New England and the East as above normal temperatures were expected throughout the area. AccuWeather.com predicted that Boston's Friday high of 61 was forecast to dip to 59 Saturday but surge to 64 on Monday, 12 degrees above normal. New York City's Friday max of 56 was predicted to reach 58 on Saturday and 68 on Monday. The seasonal high in New York is 54. Philadelphia's 59 Friday high was predicted to ease to 58 Saturday before also jumping to 68 on Monday. The normal mid-November high in Philadelphia is 56.

Monday power prices were mixed at eastern points. IntercontinentalExchange reported that peak power Monday at the New York Independent System Operator's eastern delivery point (Zone G) fell $3.75 to $40.00/MWh, but Monday power at the New England Power Pool's Massachusetts Hub rose 32 cents to $39.33/MWh.

Gas for weekend and Monday delivery at the Algonquin Citygates fell 51 cents to $3.51 and deliveries to Iroquois Waddington were off by 7 cents to $3.67. On Tennessee Zone 6 200 L gas was seen at $3.56, down 29 cents.

On Dominion gas changed hands at $2.91, down 15 cents and packages delivered to Tetco M-3 were seen at $3.11, down 24 cents. Gas on its way to New York City via Transco Zone 6 skidded 33 cents to $3.10.

Gulf locations were higher by a few pennies. Gas on ANR SE rose 3 cents to $3.45 and parcels at the Henry Hub gained 4 cents to $3.56. Gas at Transco Zone 3 was quoted at $3.51, up 4 cents and deliveries to Columbia Gulf Mainline added 4 cents to $3.47.

Industry observers have been confounded as much as anyone by the ever-changing weather forecasts. "If it gets cold we could be talking 20 Bcf a week or 3 Bcf a day additional demand with a swing in the temperatures. You've got to get Chicago and New York. That's where it counts," said a Denver producer. "I think the gas market is priced about right."

Longer term weather forecasts moderated overnight. In its morning six- to 10-day outlook WSI Corp. said "[Friday's] forecast has trended warmer across the Midwest and Deep South, yet cold over the interior West early in the period. Later in the period, temperatures have slightly warmed over the interior West and Great Lakes. Confidence in today's forecast is considered near to slightly below average standards as models generally show fair large-scale model agreement early in the period, but then diverge mid-to-late period with regards to the anticipated pattern across the lower 48 mid-to-late period.

All forecasts carry risks and WSI cautions that "The model disagreement seems to be caused by the evolution of the -NAO [North Atlantic Oscillation] block near Greenland. The GFS [Global Forecast System] solution does not actually form an omega block, thus promotes a milder solution for the U.S. The European model does promote a ridge over trough solution over the N. Atlantic, favoring a colder look to the Central and East."

Top traders suggest a sidelines approach to the market for now. "Although this market was initially nonplused by the seemingly neutral storage report, the bulls won out in the end by pushing Dec futures back up to the $3.60 area," said Jim Ritterbusch of Ritterbusch and Associates. "Short term temperature views still appear mixed from our vantage point and incapable of forcing a test of either side of our projected $3.40-3.70 trading range. Consequently, we are maintaining a neutral trading posture in anticipation of further choppy, sideways price action until temperature forecasts become more skewed in one direction or another."

He added that "With supply back to within 80 Bcf of last year's lofty levels, we are still having difficulty building a case for nearby futures north of $3.70 without major assistance from a sustained much below normal cold spell. Finally, we're maintaining a preference for bull spreads within the 2014 portion of the curve."

Addison Armstrong of Tradition Energy sees "[T]raders eye[ing] forecasts indicating below-normal temperatures and increased heating demands across much of the East in the latter part of this month and expectations of the first storage withdrawal of season next week. But record production levels and the nearly 3.85 Tcf of gas in ground should continue to provide resistance to the market in the coming weeks."

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