Natural gas for delivery Tuesday added 6 cents on average in Monday's trading, with Midwest points up a couple of pennies as a major influx of cold air was forecast to slide into the area by midweek. At the close January natural gas futures had gained 3.4 cents to $3.988 and February had risen 2.7 cents to $3.984. January crude oil gained $1.10 to $93.82/bbl.
Northeast points were mixed and eastern locations were mostly higher. Futures gained ground as traders suggested short covering had now turned to adding long positions.
Northern tier traders found themselves looking down the barrel of cold weather expected to hit by mid-week. "A storm that may evolve into an all-out blizzard will deliver snow, slippery roads, increasing wind and reduced visibility will create treacherous travel conditions and dangerous cold across the Rockies and Northern states through midweek," said AccuWeather.com meteorologist Mike Doll.
"The worst of the storm is likely Tuesday night into early Wednesday from eastern North Dakota to northern Minnesota, northwestern Wisconsin, part of the Upper Peninsula of Michigan and neighboring Canada. The worst of the cold following the storm will also focus over this area. Some locations in the northern Rockies have already received over a foot of snow since Sunday, and up to a foot of additional snow is expected through Tuesday. A fresh blanket of snow will pile up 3 to 6 inches from eastern Montana to northern Wisconsin through Tuesday with an additional accumulation Tuesday night into Wednesday that will be accompanied by increasing wind and blowing and drifting of snow."
AccuWeather.com forecast that the high in Minneapolis Monday of 38 would rise to 40 by Tuesday before dropping to 22 by Wednesday. The normal high in Minneapolis is 32. Denver's Monday high of 62 was predicted to plunge to 39 Tuesday before falling further to 20 on Wednesday. The normal early December high in Denver is 45. Cheyenne, WY's 53 high on Monday was expected to drop to 32 Tuesday and fall to 11 on Wednesday. The seasonal high in Cheyenne is 39.
Tuesday gas on Alliance was quoted at $3.92, up 5 cents and deliveries to the Chicago Citygates rose 3 cents to $3.91. On Northern Natural Ventura next-day gas added a penny to $3.82 and at Demarcation gas was flat at $3.80. Deliveries on ANR SW rose 7 cents to $3.64.
In the Northeast next-day gas prices were mixed but showed wide variability as temperatures were expected to hover near seasonal norms in spite to a series of active weather systems. AccuWeather.com forecast that Monday's high in Boston of 42 would rise to 44 on Tuesday before reaching 46 on Wednesday. The seasonal high in Boston is 46. New York's 49 high on Monday was expected to reach 51 on Tuesday before climbing to 53 on Wednesday. The normal early December high in New York is 48. Philadelphia's Monday high of 50 was seen advancing to 52 on Tuesday to 54 on Wednesday. The seasonal norm for Philadelphia is 49.
Weather throughout the area was expected to be active. The National Weather Service in New York City said "low pressure passes to the east tonight [Monday] as high pressure builds Tuesday and Wednesday. A warm front moves across the region Wednesday night. An associated cold front moves in Thursday but will be weakening and stalling with a low pressure area approaching the area along it. The wave of low pressure and the front move east of the region by Friday night with another wave of low pressure developing along it to our south and west. High pressure builds in from the north and west for the weekend with another low approaching the area late Sunday into next Monday."
Quotes for Tuesday delivery at the Algonquin Citygates rose 53 cents to $5.92 but deliveries upstream at Iroquois Waddington dropped 10 cents to $4.56. Gas on Tennessee Zone 6 200 L jumped $1.12 to $6.30.
On Dominion gas came in at $3.37, up 12 cents and on Transco Leidy Tuesday packages changed hands at $3.24, up 30 cents. At Tetco M-3 gas added 6 cents to $3.73 yet gas on its way to New York City on Transco Zone 6 fell 7 cents to $3.83.
Futures traders see some room to still move higher. "I'm thinking $4.15 to $4.20 on the top. We'll see if the weather can support it, but if it doesn't I think you will see traders step in and sell,"said a New York floor trader.
"I think last week in the $3.85 to $3.90 area you saw some people covering who had been short from 25 cents lower. Today you might have some new length coming in in the low to mid $3.90s. I don't know if we'll reach that number before Thursday, but $4.07 to $4.10 we could see in the next day or two."
The weather outlook is for more widespread cold. WSI Corp. in its morning six- to 10-day outlook shows below-normal temperatures across most of the country except portions of the Southeast. "[Monday's] six-10 day forecast is colder across much of the nation with exception of the far Southeast, where the forecast has trended slightly warmer. Confidence in today's forecast is considered near average standards as models show generally good large-scale agreement through Day nine."
Risks to the forecast include "temperatures run[ning] warmer than forecast over the East late in the period if the European deterministic model is correct with a more inland track of a potential "Nor'Easter" type low-pressure system tracking up the East Coast."
Market technicians are nervously expecting the recent strength to continue and see $4.15 in sight as well. "Friday's inability to stage even the slightest retreat from the pivotal 0.618 retracement at $3.942 strongly suggests a further advance to the $4.120 to 4.169 range," said Walter Zimmermann, vice president at United-ICAP. "This zone is well within range for this week. However, we continue to be wary of peaking action. 'Tis the season.' Along these lines, the bullish sentiment is the highest since May."
Analysts see the natural gas market riding the coattails of colder weather for the time being, but they aren't terribly enthusiastic about long-term price appreciation. "Natural gas closed higher across the board [last week]", said Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm. "Colder than average temperatures across numerous areas in the U.S. helped to give the market a boost this past week. But it is difficult to get excited about the upside potential of the gas market at this time. Even at current price levels, we continue to see U.S. natural gas production ratchet higher. On a trading basis, we will hold current positions and will look to add to our short position on rallies approaching the $4 level on the spot contract."
DeVooght currently advises trading accounts and end-users to stand aside the market while producers and those with exposure to lower prices should hold short the balance of a short November-March strip initiated at $4.50-4.60.