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East Leads All Points Lower as Polar Vortex Departs; Futures Slip

With the record cold giving way to more seasonal winter temperatures, natural gas prices for Thursday delivery continued to retreat on Wednesday. Losses were widespread, ranging from a low of just 10 cents in Southern California to multiple-dollar losses at points around New York City.

Double digit declines were the norm, and only a point or two showed gains. At the close of trading, February natural gas had fallen 8.3 cents to $4.216 and March had lost 9.2 cents to $4.175. February crude oil dropped $1.34 to $92.33/bbl.

Just as the polar vortex had caused natural gas prices to soar earlier in the week, pushing NGI quotes at New York points close to $100/MMBtu, like air rushing out of a tire, it's retreat prompted a widespread price deflation. "Reprieve is on the way from the frigid air and the polar vortex that had briefly brought life-threatening conditions to approximately 240 million people in the United States and southern Canada this week," said AccuWeather.com meteorologist Alex Sosnowski.

"Both will depart during the second half of this week, and a far-reaching January thaw will begin. The coldest part of the air has already rotated through Wednesday. Temperatures responded by climbing out of the cellar from west to east and from the central Plains to the East Coast. Over much of the Central states, South and Northeast, less wind on Wednesday has made for less harsh, less dangerous conditions.

"The only exception is the northern Plains, where very cold air is hanging on. However, it is not to the extreme as that of the start of the week. In some cases, temperatures will hold steady or rise Wednesday night over the Midwest and the East. By the weekend, temperatures over most areas affected by the arctic cold will reach average or above average levels for the middle of January."

By Friday, major eastern points were expected to be at or above normal. According to AccuWeather.com, Boston's Wednesday high of 22 will rise to 30 by Thursday and 38 on Friday. The seasonal high in Boston is 36. Albany, NY's Wednesday high of 18 was anticipated to reach 26 Thursday and by Friday rise to 36, six degrees above normal. Baltimore, MD's Wednesday maximum of 30 was predicted to rise to 36 Thursday and 40 by Friday. The normal early January high in Baltimore is 41.

At the Algonquin Citygates, deliveries of Thursday gas fell $6.79 to $18.35, and at Iroquois Waddington, gas was seen at $8.99, down $11.51. On Tennessee Zone 6 200 L, Thursday parcels retreated $4.19 to $20.59.

Some of the largest declines were reserved for gas into New York and Philadelphia. Thursday gas at Texas Eastern M-3 Delivery dropped $17.09 to $5.12, and gas bound for New York City on Transco Zone 6 skidded $19.20 to $9.46. Farther west, deliveries to Transco-Leidy Line shed 65 cents to $3.57 and on Dominion gas fell 53 cents to $3.80.

Similar temperature increases were forecast for the nation's midsection. According to AccuWeather.com, the Wednesday high in Denver of 38 was forecast to rise to 47 Thursday and 44 by Friday. By Sunday temperatures were expected to reach 40. In Omaha, Wednesday's high of 20 was seen making it to 25 Thursday and 34 on Friday. The seasonal high for Omaha is 33. Chicago's Wednesday high of a chilly 15 was anticipated to rise to 27 Thursday and reach 38 Friday. The normal high in Chicago is 32 at this time of year.

Quotes across the region tumbled. Gas on Alliance shed 65 cents to $4.73, and deliveries at the Chicago Citygates dropped 69 cents to $4.70. On Consumers, Thursday deliveries shed 54 cents to $4.87, and on MichCon gas changed hands at $4.76, 36 cents lower. At Dawn, Thursday gas came in at $4.98, down 40 cents.

Marketers have had a hard time keeping customers balanced. "We only got our flow reports from Consumers Tuesday," said a Michigan marketer. He added that some of his company’s customers had drawn down their storage more than anticipated, and "there are withdrawal tolerances this month and some customers are using more on a daily basis than we can flow. We are trying to keep our customers from paying penalties."

Thursday's storage report will not reflect the heavy usage experienced this week. Analysts at IAF Advisors calculate for the week ended Jan. 3 that 144 Bcf was withdrawn, and a Reuters survey of 27 traders and analysts resulted in an average 157 Bcf decline with a range of 137 Bcf to 230 Bcf. Bentek Energy figures on a 151 Bcf pull using its flow model. Last year, 191 Bcf was withdrawn, and the five-year average stands at a 131 Bcf withdrawal.

One observer sees traders having to deal with a variety of weather conditions. "Weather forecasts are expected to fluctuate in the coming weeks, with above-normal temperatures expected across the Midwest and Northeast in the next 10 days, followed by a shift back to below-normal in the latter part of this month," said Addison Armstrong of Tradition Energy in a Wednesday morning note to clients.

"Texas and the Southeast are expected to see normal to above-normal temps in the next 10 days, followed by the return of below-normal temperatures in the 11-15 day forecast period; gas prices have now spent a week pivoting around $4.30 as the market balances larger-than-expected heating demands and rapidly shrinking storage levels against near-record production and a high level of nuclear power output."

Analysts see a pattern with "a morning attempt to break its recent price equilibrium to the upside, followed by an eventual retreat toward the prior day's close," according to Tim Evans of Citi Futures Perspective.

"The relatively volatile price swings within the recent trading range suggest an ongoing battle between the natural gas bulls and bears," Evans said. "The bearish case would argue that the October-December rally in prices had already priced in the current cycle of cold and the warming trend of next week. The bullish case is that the storage withdrawal for the current week could amount to a new record at that even with a break in temperatures next week, there is still plenty of winter left."

Evans sees a storage withdrawal for the week ended Jan. 3 in the 150 to 155 Bcf range, and his model predicts a 159 Bcf pull with "some risk of a minor bullish surprise...We'd rate the context for Thursday's report as mixed since it will be followed by both a more impressive storage withdrawal in the next round of data and a drop in heating demand next week."

Evans forecasts that by Jan. 24, the year-on-five-year deficit will reach 328 Bcf. Last year 191 Bcf was withdrawn.

"The erratic temperature swings will clearly produce some corresponding wide swings in storage flows, consistent with further price chop. On balance, though, we still see a chance for prices to rally in the near term, even if the balance of the winter proves to be less dramatic than the cold we've seen so far."

Evans' long February recommendation was hit Tuesday on a stop at $4.41. He recommends a protective sell stop at $4.17.

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