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Prices Again Mostly Higher; Futures a Runaway Freight Train

Spot natural gas prices for Thursday delivery continued their rocket-like trajectory in Wednesday's trading, with gains again widespread, ranging from as little as 17 cents in the Pacific Northwest to double-digit dollar gains in New England. At the close of futures trading, February had jumped 25.8 cents to $4.689, and March was higher by 19.2 cents to $4.550. March crude oil gained $1.76 to $96.73/bbl.

The few steep declines were in and around the New York City area as temperatures were forecast to trend moderately higher. Midwest points, meanwhile, scored gains of $2.00 or more as the polar vortex slid deeper into the nation's midsection.

Next-day prices in the New York City market declined in spite of warnings by the National Weather Service (NWS) of temperatures well below seasonal norms. Temperatures were forecast to trend only a bit higher over the next couple of days.

Forecaster Wunderground.com predicted New York City’s high on Wednesday of 18 would reach 20 degrees Thursday and Friday. The seasonal norm for New York in mid-January is 38. Philadelphia's high of 18 on Wednesday was anticipated to hit 22 degrees through Friday; the normal high this time of year is 34.

"Bitter cold and below zero wind chills across New York City through Thursday morning [and] wind chills [Wednesday] into early Thursday morning will range from 0 to 10 below zero due to temperatures falling into the single digits and northwest winds 10-15 mph," NWS said in an afternoon warning. "Another Arctic cold front will move across the region Thursday night... likely bringing similar conditions to the city...into Friday morning."

According to Genscape freeze-offs totaled slightly more than a Bcf Wednesday, up from about 400 MMcf on Tuesday. Production in Oklahoma, Kansas and West Virginia was the hardest hit. The two western states lost little production Tuesday, but had shut-ins running up to near 100 MMcf on Wednesday. West Virginia had over 300 MMcf lost on Tuesday, but pared that down to 272 MMcf on Wednesday.

Gas for Thursday delivery into New York City on Transco Zone 6 dropped $37.66 to $84.02, and gas on Transco Zone 6 non NY fell $34.09 to $87.13. Thursday deliveries to Transco Zone 5 declined by $36.88 to $82.96.

Underscoring the relative ease of getting gas into less infrastructure-challenged locations, next-day parcels at Transco-Leidy added 40 cents to $5.07, and gas on Dominion rose 35 cents to $5.38. Deliveries to Tetco M-3 added $16.91 to $85.52.

The huge price swings have kept the IntercontinentalExchange (ICE), one of the largest natural gas trading platforms, on its toes. On Jan. 6, when the NGI price at Transco Zone 5 traded at a record $99.00, ICE raised the limit to $199, according to spokesperson Brookly McLaughlin.

At that time a polar vortex was spreading across the United States, bringing single-digit high temperatures into many Midwest and Northeast cities and causing gas heating demand to soar.

With a second polar vortex in place, the question arises as to whether ICE would again raise its trading limits. Already prices have exceed the Jan. 6 highs. According to NGI, the high on Transco Zone 5 Tuesday reached $136.00, on Transco Zone 6 non NY the high was $140.00 and on gas bound for New York City the high was $125.00.

McLaughlin was noncommittal as to whether ICE would again raise its limits. "ICE monitors the markets closely and make any adjustments needed based on the market dynamics."

Just as temperatures were forecast to be ever so slightly higher in the New York area, New England temperatures were expected to trend lower, and prices jumped.

Wunderground.com forecast that the high Wednesday of 18 in Boston would fall to 16 Thursday and to 13 on Friday. The seasonal high is 36. Hartford, CT's 19 on Wednesday was seen dropping to 16 Thursday and Friday; the seasonal high is 34.

At the Algonquin Citygates, gas for Thursday delivery added $19.91 to $78.30, and on Iroquois Waddington gas jumped $16.56 to $74.93. On Tennessee Zone 6 200 L, next-day packages changed hands at $80.32, up $23.81.

Not to be outdone, Midwest points posted a few hefty gains of their own as NWS issued a winter weather advisory. Wunderground.com predicted Chicago’s 16 degrees on Wednesday would fall to 9 Thursday before climbing to 23 Friday. The normal high in the Windy City is 31. Omaha’s Wednesday high of 16 was forecast to drop to 13 Thursday before jumping to 49 on Friday.

"Northwest winds gusting up to 35 mph will create blowing and drifting snow, which may reduce visibilities to one half mile or less at times,” said NWS forecasters in Chicago. Snow showers were seen continuing with “up to one inch of snow accumulation possible."

Thursday deliveries on Alliance jumped $2.38 to $9.06, and at the Chicago Citygates, next-day gas came in at $8.99, up $2.26. On Northern Natural Ventura, gas was seen at $9.11, up $2.25, and at Demarcation Thursday gas changed hands at $5.94, up 81 cents.

Futures traders aren't ready to call a top.

"We traded above Tuesday's highs and the market took off," said a New York floor trader. "This is just a runaway freight train so I wouldn't pick any tops just yet. I guess $5.00 is the next level.”

Just how far the train can keep running may be determined in the short run by Thursday's Energy Information Administration storage report. Last year 168 Bcf was withdrawn and the five-year average is for 181 Bcf. For the week ended Jan. 17, estimates are for far less. IAF Advisors calculates a pull of 101 Bcf, and a Reuters survey of 23 industry players showed an average 110 Bcf with a range of 90 Bcf to 150 Bcf. Bentek Energy’s flow model predicts a 94 Bcf withdrawal.

Joe Bastardi of WeatherBell Analytics in a Wednesday 20-day forecast said the cold weather isn't going away anytime soon.

"Severe cold the next 10 days centered over the eastern part of the nation will transition to a pattern that will pull more cold into the western part of the U.S., allowing for some relaxation of the widespread extreme cold over the east, but also leading to a pattern where major battles take place between cold more central and western U.S. centered than east-centric cold like we are seeing now.

"However, the cold is not going away. We are going to the February version of December, and that means attacks in the east as per December and basically a pattern that argues for coast to coast cold, though with more warmth over the Southeast than what we will see in the coming days."

Addison Armstrong of Tradition Energy cautioned that the market may face headwinds once production kicks in, even though "forecasts for arctic-like temperatures and elevated heating demands in the coming weeks continues to provide a spark to the market.

"Gas prices have pushed back above $4.50 for second time in a month as this winter's much stronger than expected residential/commercial heating demands and the more than 1.3 Tcf of gas pulled from storage has propelled the market to levels not seen since the middle of 2011.

"But near-record production levels of gas and long-term weather forecasts indicating normal to above-normal temperatures in the second half of the winter may provide growing resistance to the market in the coming weeks."

Tim Evans of Citi Futures Perspective suggested focus had turned to the cash market "squeezed even higher in the next-day market, with New York Zone 6 pipeline gas up $116 to trade over $120.00/MMBtu. The reported range was $85 to $135.

"These extreme prices are a function of the extent to which inventories have already been depleted by the earlier cycles of cold this winter and the urgency of immediate demand with New York City temperatures set to drop to 8 degrees F.

"The disparity in price levels highlights the difference between cash market supply to New York City on a specific cold date and average February delivery at Henry Hub in Louisiana, but there are connections, too," Evans said. "Inventory being drawn down in the Northeast during the cold wave will be replaced with deliveries as soon as pipeline capacity becomes available, even if that is not until spring."

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