Cash prices around much of the country on Monday rose about a dime, excluding double-digit losses posted at a number of eastern points. Traders ascribed the gains primarily to an early surge in March futures. However, the late session futures decline should result in lower cash quotes Tuesday.

At the close of futures trading March had declined 4.3 cents to $2.713 and April had lost 5.3 cents to $2.816. March crude oil fell 78 cents to $98.78/bbl.

“[Monday] morning we saw some strength in basis such as the summer contracts of Tetco M-3 and Transco Z-6, which we were all puzzled about. If you look at the weather, there is just none out there. Why would anyone want to lift some Tetco M-3 or Z-6?” queried an East Coast trader.

“The first 45 minutes was dead quiet Monday, in basis, futures and power and then we saw some things get bid for.”

A Rocky Mountain marketer saw the strength based on futures. “Opal and a number of other points were all stronger off of Nymex, but once the cash stopped trading it all came down. I think we will be lower, based on what happened on Nymex after [cash] trading finished.”

Data shows that March futures opened floor trading at $2.73 and on two occasions by 11:35 EST had traded above $2.80. Cash trading ended at 12:30 PM EST.

Texas points were strong. NGPL S. TX was up by a dime and Katy rose about 12 cents. The Houston Ship Channel followed suit.

Gulf locations also had a firm tone. Columbia Gas Mainline rose a little less than a dime and Henry Hub gained approximately 12 cents. ANR SE added close to 8 cents.

Eastern points were the exception to the day’s Nymex-inspired gains. Prices at Algonquin Citygates were nearly 70 cents lower, and Dracut gas skidded just under half a dollar on the day.

Next-day power prices helped with the price decline. IntercontinentalExchange (ICE) reported that Nepool next-day on-peak power plunged $5.55 to $33.09 and PJM next-day on-peak deliveries dropped an even greater $7.24 to $31.71.

Futures traders were perplexed by the day’s rise and then sudden fall. “Prices looked like they wanted to move higher, and then pretty soon we are off by a dime,” said a New York floor trader.

“I thought you might see some short covering above $2.80, but somebody just came in and whacked the market. I don’t have a good feel for it at these levels, but I thought we would be lower this week. The weather is still moderate. It is supposed to be in the 50s by Wednesday.”

Data from the Commodity Futures Trading Commission showed that directional traders in its most recent report added both long and short positions with a heavy skew to the long side of the market. In its Commitments of Traders Report for the five trading days ended Jan. 24 managed money increased long futures and options by greater than 2:1 compared to short positions.

At ICE, long futures and options (2,500 MMBtu per contract) increased by 84,902 to 461,667 and short contracts rose by 7,773 to 206,919. At the New York Mercantile Exchange long futures and options (10,000 MMBtu per contract) increased 21,170 to 210,940 and short holdings rose by 14,849 to 291,223. When adjusted for contract size, long futures and options at both exchanges increased by 42,193 and short positions grew by 16,792. For the five trading days ended Jan. 24 March futures gained 7.3 cents to $2.601.

Traders are taking a wait-and-see approach to the market following last week’s gains. The March contract added more than 35 cents, and Mike DeVooght, president of DEVO Capital, noted that the “rally just wiped out the prior week’s declines, but at least the gas market stopped its freefall.”

Cutbacks by Chesapeake Energy and others were enough to prompt the gains, but “the weekly gas storage number showed a larger-than-anticipated draw but failed to be a market mover,” he said. “Time will tell if the announced cuts will be enough to put a floor under the gas market. There have been stories of major projects that will utilize energies other than natural gas put on hold because of the current relative cheapness of natural gas. If some of these major projects shift to using natural gas rather than coal, we could see an interest in longer-dated term buy interest, an interest that has been absent for quite some time. On a trade basis, we will continue to hold current positions and view any significant rally from current levels as an opportunity to do some forward sales in the summer strip.”

DeVooght currently advises trading accounts and end-users to stand aside. Producers and those with exposure to lower prices are counseled to hold the remainder of an option strip consisting of long November-March puts at $4.75 offset by the sale of $7 call options for a 16- to 20-cent debit.

The challenge the market will be faced with is whether announced cutbacks will be able to offset the continuing increase in the storage surplus. Tim Evans of Citi Futures Perspective in New York calculates that this week’s withdrawal report will fall at about 121 Bcf, well short of last year’s 187 Bcf pull and a five-year average of 186 Bcf.

Near-term weather forecasts portray more above-normal temperatures. In its 11- to 15-day forecast, Commodity Weather Group shows a wide ridge of above- to much-above-normal temperatures from Idaho to Oklahoma to northern Michigan. The remainder of the country is expected to have normal temperatures.

“We intensified the short-range warming for the Midwest and East with upside risks as high as 60 [degrees] in Chicago [Tuesday] and even 70s for the lower Mid-Atlantic by Wednesday,” said Matt Rogers, president of the firm. “Colder trends still return this weekend into next week, but the overnight European and American operational models were warmer than their previous depictions with less cold air transport. [Monday’s] models also offer bigger disagreement in the 11-15 day as the American models maintain and expand cold air coverage (to include more of the Midwest), while the European ensembles send a warm push eastward in the second half. Given the volatility and struggle to sustain cold this winter, we favored the warmer Euro ensembles today.”

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