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Futures Volatility Subsides In Mixed Trading; California, Rockies Post Gains

Physical natural gas prices for Friday delivery were broadly mixed in Thursday trading, with gains posted in New England, California and the Rockies and declines seen in the Midwest, East and Gulf.

The Energy Information Administration reported a gas storage withdrawal of 95 Bcf, and although the initial reaction by the futures market was muted, prices went on to finish the day lower. Volatility was considerably lower than prior sessions. At the close, April had fallen 3.0 cents to $4.511 and May was higher by 1.0 cents to $4.474. April crude oil fell 19 cents to $102.40/bbl.

Northeast and Eastern locations showed a mixed reaction to impending cold and snowy conditions expected throughout the region. Temperatures are expected to dip Friday and remain well below seasonal norms. AccuWeather.com forecast that Boston's high of 29 degrees Thursday was expected to fall to 26 Friday and make it back up to 34 on Saturday. The normal high in Boston in late February is 42. New York City's high of 32 on Thursday was seen sliding to 21 on Friday and back up to 35 on Saturday. The seasonal high in the Big Apple this time of year is 45. Philadelphia's high Friday of 34 was seen dipping to 22 Friday and climbing to 37 on Saturday. The normal late February high in Philadelphia is 48.

"March may not come in like a lion everywhere across the nation, but winter will roar during the first several days of the month and impact more than 100 million people," said AccuWeather.com meteorologist Alex Sosnowski. "Early indications are that a long-duration snow event will expand from the northern Rockies and central Plains to portions of the Midwest and Northeast in the days ahead. The adverse winter conditions will develop Friday into Saturday over the Plains and are forecast to shift slowly eastward Sunday and Monday. Snowfall from the west-to-east storm will exceed a 1,500-mile stretch on its journey. Several storms will slice eastward in the snow area this weekend with the main storm forecast to roll out Sunday to Monday."

Price response was mixed along the Eastern Seaboard as cold by itself will obviously increase heating load, but snowy conditions often diminish economic activity and prompt a general slowdown in transportation and overall commerce.

Pipelines were bracing for the wintry onslaught. Tennessee Gas Pipeline said it was lifting an operational flow order in Zone 4 (Pennsylvania and points south and west) but reminded customers "to match physical flow with scheduled volumes in order to avoid the issuance of any additional actions." It also said that an operational flow order remained in effect for Zones 5 and 6 (New York and New England).

Quotes for next-day delivery at Algonquin Citygate rose by $1.91 to $31.32, but gas into Iroquois Waddington fell 88 cents to $25.87. Friday deliveries on Tennessee Zone 6 200 L gained 48 cents to $29.32.

Packages on Transco Leidy rose 25 cents to $4.43, but gas on Dominion fell by 38 cents to $4.75. Parcels on Tetco M-3 Delivery dropped $3.36to $11.64, and gas bound for New York City on Transco Zone 6 shed $4.56 to $19.88.

California prices enjoyed gains as below-normal temperatures were forecast to accompany a broad rainfall pattern late in the week. AccuWeather.com forecast that the high in Los Angeles Thursday of 67 would ease to 63 on Friday and 62 on Saturday. The normal high in Los Angeles is 69. San Francisco's Thursday high of 59 was anticipated to fall to 57 on Friday but bounce back to 59 on Saturday. The normal high in San Francisco for late February is 61.

Quotes at Malin rose 59 cents to $5.92, and deliveries to PG&E Citygates added 27 cents to $5.73. At the SoCal Citygates next-day packages were seen at $5.61, up 16 cents, and at the SoCal Border gas for Friday delivery changed hands at $5.48, up 18 cents. On El Paso S Mainline prices rose 17 cents to $5.47.

Prices in the Rockies firmed as the storm was expected to first hit the Mountain West before grinding eastward. Gas on CIG was seen 14 cents higher at $5.21, and deliveries to the Cheyenne Hub came in 3 cents higher at $5.82. At Opal, gas for Friday delivery came in at $5.50, up 21 cents, and on Northwest Pipeline Wyoming Friday parcels tipped the scales at $5.30, up 18 cents.

The dominant futures price driver was the Thursday morning storage report, and although initial reaction to the 95 Bcf withdrawal was muffled, the April contract went on emulate the decline of its predecessor March and settled lower on the day. Traders were looking for a pull above 100 Bcf, but shortly after the number was released, the April contract was just a few ticks off Wednesday's settlement.

"People were looking for a number between 103 to 107 Bcf, and we were looking for the market to come off, but it did not follow through. It came off a few cents and then recovered," said a New York floor trader. He said the April contract was enjoying support at $4.40 and resistance at $4.60.

According to Tim Evans of Citi Futures Perspective, "The 95 Bcf net withdrawal for the week ended Feb. 21 was near the lower end of the range of market expectations and a clear bearish miss compared with news wire surveys in the 103-107 range...So far the market is taking the news well, perhaps with the thought that it could have been worse, or just that recent price weakness left the market at a level cheap enough to represent a bargain."

WeatherBELL Analytics sees ongoing, if not brutal, cold continuing along with elevated heating requirements. In its Thursday morning 20-day forecast it predicted nationally a six- to 10-day period accumulation of 154.3 heating degree days (HDD), well above last year's 118.6 HDD and much greater than the 30-year average of 104.8 HDD. In the 11- to 15-day time frame, HDDs are seen at 109.5, greater than last year's 92.9 and also greater than the 30-year average of 92.8 HDD.

Meteorologist Joe Bastardi sees incredible cold coming, certainly by late winter standards, and looks for "a spectacularly cold opening week to March, with major winter storms from the Plains to East." He says week two should show some moderation but nowhere near mild. "CFSv2 [NOAA Climate Forecast System version 2] keeps teleconnections favorable for cold all month and has coldest March from the Plains to the East since 1996.

"The GFS [Global Forecast System] operational at 00z and 06z is forecasting unheard of, historic cold in the East in the wake of the major snow/ice event that is coming. No way can it be argued that these runs are warm. The only "warm" is in relation to the super cold that is opening the month. The model, over the eastern Ohio Valley into the Northeast, has not only the coldest so late in the season in some places a week from today, but the coldest ever! This is simply unbelievable (so I don't believe it for the big cities, but it's one of those things where you look and marvel at how a model can see such a thing).

"We have seen the ECMWF [European] do this and here is what I have found. The temperatures don't show up in the HEART of the big cities, but if one goes to the mesonets [networks of automated weather stations], one finds the cold in areas around the cities. So even if we moderate this by 20 degrees F let's say, for this time of the year, it's still 25 degrees F below normal. A -27 degrees F in Johnstown, PA, is over 40 degrees F below normal."

Analysts at Energy Metro Desk (EMD) were waxing nostalgic on natural gas storage. "Once upon a time, a 100 Bcf pull around this time of the year was considered fairly big. No mas. We've seen so many 225+ Bcf draws this year we've lost track," said John Sodergreen, the editor. "In the past four weeks we've pulled nearly a Tcf out of storage (980 Bcf), or roughly 245 Bcf per week; last year, same period, we pulled just over 600 Bcf. The five-year average for the past four weeks is 608 Bcf. The Polar Vortex is in for a return engagement in the next couple days. Next week's report should only show a pull in the 120-150 neighborhood, but the following week analysts tell us another 200+ Bcf pull is in the cards."

EMDwas looking for a pull of 103 Bcf in Thursday's storage report, as was United ICAP. Bentek Energy's flow model calculated a 93 Bcf withdrawal, and a Reuters poll of 23 traders and analysts revealed an average 107 Bcf with a range of 96 Bcf to 128 Bcf. Last year, 165 Bcf was pulled and the five-year pace stands at 125 Bcf.

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