Fueled by the coldest air yet this heating season and cajoled by supportive futures prices, cash prices in the Northeast continued their meteoric rise Wednesday, stair-stepping higher in dollar increments as traders scrambled for molecules amid heavy heating demand. Meanwhile, temperatures across the rest of the nation moderated, albeit slightly, from last week's frigid cold, and prices eased accordingly. In futures trading, January tacked on an even dime to close Wednesday at $4.337 and February followed suit to settle at $4.331. January crude oil dropped $1.07 to $97.44/bbl.
Losses in the Midwest and Southwest were able to offset multi-dollar gains at New York and Philadelphia delivery points.
Next-day gas prices across the Midwest fell as a modest warming trend emerged. Chicago, though, still was expected to remain cold.
"Chicago will not catch a break from the bitter cold this week, as low temperatures continue to plague the city,” said AccuWeather.com's Kristen Rodman. “After a winterlike Wednesday, Thursday will not bring any reprieve. High temperatures will struggle to reach the 20s in the afternoon. Overnight, they will hover in the upper teens. Friday will warm up slightly and feature some sunshine, as temperatures rise into the low 30s. Snow will begin falling late Friday night through Saturday afternoon, bringing one to three inches to the city."
The Wednesday high of 18 in Chicago was expected to rise to all of 19 Thursday and 30 on Friday, still below the average of 36. Omaha's 13 high on Wednesday was expected to rise to 22 Thursday and 27 Friday; the seasonal high is 36. In Denver, Wednesday's high reading of 37 should reset to 53 on Thursday before sliding to 45 on Friday. The seasonal high is 42.
A Midwest utility buyer said the last few days had been challenging.
“Last Friday I was trying to buy gas from suppliers and they all said they were flat and couldn't help me at all. It was brutal, and it has been a long time since I have had that many suppliers tell me no. Late Friday, trading opened up and I was able to get some additional volumes."
Volumes have been high, the buyer said. "Last Friday we sold 270,000 Dt and we'll probably sell 240,000 Dt [Wednesday]. We have been able to use our firm storage, but once Northern Natural Gas starts allocating we don't even try to get more. We just go to the spot market because we don't want to deal with the cuts coming through all day long.”
On Alliance, gas for Thursday delivery fell 37 cents to $4.53 and Chicago Citygates gas was seen at $4.60, down 49 cents. Northern Natural Ventura’s Thursday gas was seen at $4.58, down 54 cents, while at Demarcation, Thursday parcels traded at $4.55, down 55 cents. Deliveries on ANR SW shed 25 cents to $4.33.
Demand in and around prime Mid-Atlantic markets likely will push spot prices still higher. "Appalachia demand continues to remain elevated and likely to remain so through the remainder of the week,” said Genscape Inc. analysts Wednesday’s nominated demand was 16.8 Bcf/d, “2.5 Bcf/d above the prior seven-day average as temperatures in New York were in the 30s, about 14 degrees below normal for this date.”
Another Arctic air mass, said Genscape’s analysts, has begun descending into the Great Lakes and was expected to move over the Northeast Thursday “which should sustain Appalachia demand above the 16 Bcf/d mark."
Gas in the East showed the day's strongest gains. Deliveries Thursday to Tetco M-3 vaulted $5.58 to $11.07, and gas bound for New York City added $8.52 to $16.54. Thursday packages on Dominion changed hands at $3.73, down 16 cents, and gas on Transco Leidy fell 60 cents to $3.03.
Points in the Southwest eased as moderating weather lifted the threat of freeze-offs. "Production regions hit by freeze-offs may be slowly recovering as warmer weather moves into the western U.S.,” said Genscape. “Nominations for the Desert Southwest region (which hosts the San Juan and the New Mexico portion of the Permian) are back above 2 Bcf/d [Wednesday] for the first time since late last week."
Next-day gas on El Paso S Mainline dropped 60 cents to $4.72, and gas on El Paso Permian dropped 30 cents to $4.34. On Transwestern, San Juan Thursday deliveries fell 47 cents to $4.61 and Transwestern next-day gas came in at $4.53, down 46 cents.
Futures traders have a bullish perspective.
"Look for a little more on the upside," said a New York floor trader. "If the market can sustain pullbacks, it will work itself better, probably up to $4.50." The trader admitted that his own theory of cold weather in New York lifting the market was in play. "Psychologically it seems to fall into place that if its cold in New York, the market wants to rally.
"The market feels like it wants to go up, and on pullbacks it should hold Tuesday's settlement [$4.237]. From there $4.38, $4.43, $4.45 and then up into the low $4.50s. Then we have to reevaluate."
There may be considerable reevaluation going on once the Energy Information Administration releases storage inventory figures at 10:30 a.m. EST Thursday. Last week a colossal 162 Bcf was pulled from storage, but this week's withdrawal looks to be considerably less although well above historical norms. Last year 8 Bcf was withdrawn and the five-year average is for a 76 Bcf pull.
IAF Advisors of Houston is expecting an 80 Bcf decline and Bentek Energy predicted a withdrawal of 82 Bcf. A survey of 25 traders and analysts by Reuters revealed a sample average of 88 Bcf with a range of 78 Bcf to 107 Bcf.
Weather in the immediate term is expected to be quite cold, but MDA Weather Services said in its six- to 10-day outlook that a warming pattern was beginning to emerge. In its one- to five-day outlook MDA showed much below normal temperatures extending from New England, the Mid-Atlantic, down the Ohio and Mississippi Valleys with below-normal temperatures throughout the country.
The “period starts out quite cold in the East; still the outlook on a whole trended warmer [Wednesday] nationally. This less-cold outlook comes as a result of weaker high pressure and increased volatility in this period. By late in the period, a building ridge in the northeast Pacific is expected to force another round of strong cold south with high pressure from Canada.
“This trended a little colder in the West to the central U.S. while the South to East pushed more strongly to the warm side ahead of this amplified pattern. Even with some detail changes, confidence remains similar to [Tuesday]."
Analysts versed in seasonal analysis see the market ripe to put in a top. The problem is the seasonality might be correct, but a number of other technical parameters have yet to fall into alignment. "We are now past the epicenter of the seasonal peaking window," said Brian LaRose, market analyst with United ICAP.
"Key resistance is being tested. A potential doji star top is visible on the daily candlestick chart. All well and good; however, the short-term technicals continue to favor the bulls and no support levels have been broken, let alone tested. To suggest some sort of top is in place, bears need to push natgas back below $4.000.”