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East Led Nationwide Advance Tuesday; Futures Gain Again

A vast majority of physical natural gas price averages across the country posted gains Tuesday as many regions, including much of the East, were bracing for another round of below-normal temperatures while the West Coast sweltered under warmer-than-normal conditions with lower-than-normal hydro power supplies.

A number of eastern pricing points posted a second day of stout double-digit gains, aided in part by continued screen strength. Only a couple of Marcellus points couldn't make it into the plus column, while some locations soared with gains of more than a dollar.

East Coast locations led the march higher, but California points firmed as temperatures were well above normal and the specter of drought continued to loom. At the close of futures trading, February had risen for the third consecutive session by 9.5 cents to $4.369 and March was higher by 9.1 cents to $4.315. February crude oil added 79 cents to $92.59/bbl.

West Coast prices firmed as drought-induced temperatures were expected to be about 15 degrees above normal. AccuWeather.com forecast that the high Tuesday of 82 in Los Angeles would rise to 85 on Wednesday before slipping back to 82 on Thursday. The seasonal high in Los Angeles is 68. San Diego's 80 degree high on Tuesday was anticipated to climb to 82 Wednesday and then drop to 79 on Thursday. The seasonal high in San Diego is 65. Phoenix's high Tuesday of 73 was predicted to hold Wednesday before easing to 72 on Thursday. The normal high in Phoenix in mid-January is 67.

"The severe drought across Southern California will combine with Santa Ana winds to create a high fire danger through Wednesday, said AccuWeather.com meteorologist Brian Thompson. "Winds in many of the mountains, canyons and passes of Ventura, Los Angeles, Orange, San Bernardino, Riverside and San Diego counties will gust as high as 60 mph; the most persistent and strongest winds will occur through Tuesday night but could still linger into Wednesday."

He said that fires were a big concern and despite it being the rainy season in Southern California, it has not rained in many areas since Dec. 19, nearly a month ago. Meteorologist Ken Clark said, "Since the beginning of October, the central part of the state, including all the huge agricultural areas, has had only 5% to 15% of normal precipitation, and farther south, Los Angeles has received only 22% of the normal rainfall since last January. Southern California needs rain and it needs rain badly. This is a disaster in the making for California."

Thompson said, "Prevailing offshore winds will also push away the cool air from the Pacific Ocean. This will send temperatures well above average to near-record levels. Much of the LA Basin will be near or above 80 through Thursday. The Santa Ana winds are being caused by a strong area of high pressure building near the Great Basin. The clockwise flow around the high is bringing the strong, northeasterly winds into Southern California. As the high pulls away on Wednesday, the winds should subside some, but there doesn't appear to be any rainfall in sight for at least the next week."

Longer term, western water supplies aren't looking all that strong either. It's early in the water year 2014, but at present the Northwest River Forecast Center (NWRFC) is forecasting below-normal flows at one of the Pacific Northwest's most prominent points. It forecast that for the April-August flow period volumes at the Dalles Dam had a 90% chance of exceeding 66,486 KAF (thousand acre-feet per second) but that represented just 76% of normal flows. Average flows for that period are 87,532 KAF and last year registered flows of 87,052 KAF.

Gas at Malin for Wednesday delivery added 11 cents to $4.38, and at the PG&E Citygates next-day gas rose 11 cents, also to $4.58. Not to be left out, deliveries to SoCal Border points also rose by 11 cents to $4.45, and at the SoCal Citygates Wednesday packages were seen at $4.61, up 14 cents. On El Paso S Mainline gas for next-day delivery rose 6 cents to $4.44.

Eastern points rose, although near-term forecasts called for relatively mild temperatures. AccuWeather.com predicted the high Tuesday in New York of 51 would ease to only 50 Wednesday before sliding to 43 on Thursday. The normal high in New York this time of year is 38. Chicago's 34 Tuesday high was anticipated to slide to 19 Wednesday before climbing back to 34 Thursday. The seasonal high in the Windy City is 31.

At the Algonquin Citygates, next-day packages were quoted at $7.15, up $1.41, and at Iroquois Waddington gas was seen at $5.14, up 16 cents. Gas on Tennessee Zone 6 200 L added $1.84 to $7.97.

Gas on Transco-Leidy eased 2 cents to $3.59, and on Dominion packages for Wednesday came in at $4.07, up 30 cents. Parcels on Tetco M-3 Delivery added 29 cents to $4.51, and gas headed for New York City on Transco Zone 6 rose 28 cents to $4.64.

Futures traders see upward pressure on prices for the moment, but longer term they aren't so sure. "It looks like storage levels could fall well-below 1.5 Tcf due to the colder-than-expected temperatures and increasing industrial demand," said Addison Armstrong of Tradition Energy in a note to clients. "But near-record production levels of gas and longer-range forecasts that are indicating normal to above-normal temperatures in the final two months of winter should provide some resistance to rising gas prices."

Forecasts continued to work colder in the more deferred time periods. WSI Corp. in its morning 11- to 15-day outlook said, "[Tuesday's] forecast has trended colder over the Northeast early, and over the northern Plains and ERCOT late in the period when compared to yesterday's forecast. Confidence is considered near to slightly above average standards as a result of good large-scale agreement between the latest models.

"A collapse of the polar vortex and settlement over the Northeast during the 11-15 day period favors cold risks early across much of the eastern two-thirds [of the country]. However, temperatures could begin to run warmer than forecast over the Plains late in the period if troughing is stronger than anticipated over the West late."

Analysts see additional room for prices to advance to last week's highs. "This market had virtually priced in a record 300 Bcf storage draw last week when prices plunged briefly to below the $4 mark," said Jim Ritterbusch of Ritterbusch and Associates in a Tuesday morning note to clients.

"However, weekend updates to the temperature views are placing another near-record draw back on the table that could be issued later this month. Another round of frigid temperatures expected to cover the eastern half of the U.S. have the speculative shorts on the run again in the process of accommodating a price spike of more than 35 cents just within the past couple of trading sessions. This sharp upswing easily offset more than half of the price decline that developed from late December into late last week and underscored the hyper volatility that can be seen at this time of the year when the temperature forecasts are exhibiting dramatic changes over a short time period."

Tom Saal, vice president at INTL FC Stone in Miami, in his work with Market Profile was looking for the market to test Monday's value area at $4.254 to $4.214, followed by a test of $4.416 to $4.338 and "eventually" a test of $4.076 to $4.034. He said, "price volatility is back in the price of natural gas! [There are] Multiple 'untested' value areas above and below the current price."

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