Natural gas scheduled for delivery Wednesday rose 2 cents on average in Tuesday's trading, but the nominal rise masked greater market strength. If volatile points in the Northeast showing multi-dollar declines are subtracted from the figures, the overall gain comes in at 8 cents.
Points in the Midwest and northern tier of states showed solid double-digit gains, as did locations in California and the Rockies. At the close of futures trading, January had retreated 1.2 cents to $3.976 and February was off 1.0 cents to $3.974. January crude oil jumped $2.22 to $96.04/bbl.
In the Midwest, Northern Natural Gas was feeling the effects of heavy draws on the pipe and issued a system overrun limitation requiring customers to take only their allotted share of gas. "We're not supposed to take any more than we have nominated," said a Midwest utility buyer. "Don't be gaming the system and take more than you are supposed to take, and things like that. We'll just have to make sure we have plenty of gas. We'll probably get to 215,000 to 220,000 Dth/d by later in the week when the forecast cold comes in."
Wunderground.com forecast that Chicago's Tuesday afternoon 51 would rise to 52 by Wednesday before dropping to 33 on Thursday. The seasonal high in Chicago is 40. Omaha, NE's Tuesday 42 was expected to drop to 34 Wednesday and 23 on Thursday. The normal high in Omaha is 39 this time of year.
The National Weather Service in suburban Chicago reported that "Unseasonably warm/moist air will flood into the area tomorrow [Wednesday] with highs likely to surge well into the 50s with lower 60s possible South. [A] rapid temperature drop will take place with frontal passage tomorrow evening followed by a continued feed of progressively colder air seeping southward into the area into the weekend...placing temperatures in a bit of a controlled free-fall."
Anyone gaming the system had to pay up. Gas quoted on ANR SW for Wednesday delivery rose 15 cents to $3.79, and deliveries to Northern Natural Ventura added 18 cents to $4.00. Gas at Demarcation came in 17 cents higher as well to $3.97.
Northeast points plunged as temperatures were forecast to be at if not above normal levels. Wunderground.com reported that Boston's 44 degrees on Tuesday was expected to rise to 46 on Wednesday before rising further to 51 on Thursday. The normal high in Boston is 46. Hartford, CT's 40 degree reading on Tuesday was anticipated to jump to 48 on Wednesday before reaching a relatively toasty 55 on Thursday. The normal early December high in Hartford is 44.
Next-day power prices in the region were also on the skids. IntercontinentalExchange said Wednesday peak power delivered to the New England ISO's Massachusetts Hub dropped $7.65 to $44.53/MWh.
Gas for delivery Wednesday to the Algonquin Citygates plunged $1.16 to $4.76, and deliveries to Iroquois Waddington dropped 20 cents to $4.36. Gas on Tennessee Zone 6 200 L dropped $1.56 to $4.74.
Other eastern points softened as well. Deliveries on Transco Leidy gained a penny to $3.25, but gas on Tetco M-3 fell 8 cents to $3.65. On Dominion, gas for Wednesday delivery shed a nickel to $3.32, and gas bound for New York City on Transco Zone 6 lost a penny to $3.82.
In Monday's trading bulls and bears waged hand-to-hand combat as the market put in a six-month high but failed to breach the psychological $4 threshold. Tuesday that struggle continued and in the broader picture, Addison Armstrong of Tradition Energy saw Tuesday's "Commitment of Traders Report" from the CFTC [as being] closely watched to see the extent of the reduction in the managed money net-short position, as the potential for further short-covering could see the market retest highs made back in April."
For the moment, "Expectations for colder temperatures and a storage report that will show a withdrawal far in excess of the five-year average for the week are the primary drivers of the strength in the market, and the latest forecasts are for cold to continue to grip the West over the next five days, while indications of warmer conditions in the East are contributing to this morning's price weakness," he said. "However, frigid conditions are still seen dominating the Northern Tier, the Mid-Atlantic and the Northeast through the middle of the month."
As bullish as the storage weather dynamic may seem, traders caution against initiating positions above $4. "These [weather] forecasts virtually assure some unusually heavy storage draws within the next 3 EIA reports," said Jim Ritterbusch of Ritterbusch and Associates in closing comments to clients.
"[Monday's] price action offered indication that the large speculators are seizing upon even minor price pullbacks as an opportunity to reduce bearish exposure ahead of a storage figure on Thursday that could be roughly double that of a year ago. The dynamic of a sizable expansion in the year-over-year deficit will tend to keep a bid under prices until the temperature forecasts begin to show some indication of a warming trend beyond mid-month. Otherwise, this market will be forced to price in an unusually cold December that will be contrasting sharply with last year's unusually mild December. All in all, we see some additional upside price follow-through, while at the same time we will caution against approaching the long side for position-type traders at levels north of $4."
WSI Corp. in its Tuesday morning six- to 10-day outlook showed pervasive cold throughout most of the country, but it said "[Tuesday's] six-10 day forecast is warmer across the Southern Tier when compared to the previous forecast."