Finding they could defy fundamental weakness for only so long, cash prices plunged across the board Thursday. A brief midweek spurt of extra heating load in the key Midwest and Northeast market areas was rapidly approaching its end, the screen followed up Wednesday’s drop of 20 cents-plus with another one, and the extreme bearishness of the storage situation was a hot topic among traders.

The amounts of decline were fairly uniform across all geographic market areas as daily numbers fell anywhere from about 45 cents to 90 cents or so (OGT in the Midcontinent was an outlier with a dip of only about a quarter).

The Energy Information Administration’s report of an 81 Bcf drop in storage inventories during the week ending Jan. 20 was above consensus expectations, but it failed to make a case for Nymex bulls because it lagged seriously behind historical comparisons (see futures story). February futures hit an intraday low of $7.750 in their penultimate day of trading before rallying to a daily close at $8.229, down 23.1 cents on the day. The last time a prompt-month contact was below $7.750 occurred last year on July 29 when the September screen saw an intraday low of $7.701.

While the Northeast will remain windy and chilly into the weekend with a fresh cold front approaching out of Eastern Canada, it was expected to be snow-free and milder than on Wednesday and Thursday. The Midwest and central Plains can expect snow in some areas, but will still average 10-20 degrees above normal. Winter storms are due through the weekend in the Pacific Northwest, but that forecast was insufficient to keep western prices from tanking. The South will be shaking off a modest cooldown Thursday as temperatures begin to rise again.

Prices are finally facing up to fundamental reality, said a Gulf Coast producer who trades the Northeast. He expects the cash market slide to continue Friday because the market area had a couple of days of winter-like weather but was due for a warm-up around Saturday, and traders had negative guidance from two successive days of futures weakness. He said he understood that “a record number of shorts were being cleared out” at Nymex when the futures rebound began Thursday.

“People that had been rolling storage hedges out to summer or fall seem to have quit” that practice, the producer went on, saying that bodes ill for near-term prices as use of storage appears likely to grow rapidly as customers start to run into withdrawal ratchets. He had no problem with it, saying, “As long as prices are volatile we can still make money,” so they don’t have to stay high all the time.

The producer said he was trading Columbia Gas for February at index minus half a cent Thursday. He also quoted basis of plus 28 cents for Dominion and plus 29-30 cents for Columbia. That’s a bit unusual, he said, since normally Dominion trades at a modest premium to Columbia.

It was becoming obvious that February indexes will see tremendous plunges from January’s levels. January futures settled at $11.431 after an expiration-day spike of about 40 cents. The February contract, now standing at more than $3 below that, is not expected to make up much ground on that gap on its final day Friday, and could just as well retreat further.

A Texas-based marketer reported these bidweek trading ranges Thursday: ANR Southwest, mid $6.40s to nearly $6.80; NGPL Midcontinent, around $6.50 to the high $6.70s; Panhandle Eastern, mid $6.40s to mid $6.70s; Transwestern Permian, low to mid $6.30s; Waha, around $6.40 to the mid $6.80s; and Southern Star Central, mid $6.40s to high $6.50s (the marketer said she called Southern Star by its former name of Williams because an online trading service still refers to it that way). She noted that it had been a long time since Midcontinent pipes have traded at less than $7.

The bidweek price trend was up generally Thursday, she said, but included a mix of ups and downs that generally tracked whatever direction Nymex was going at the time. She said her company tends to spread out its bidweek business over all five days, so it will be among the few expected to be still making February deals after the weekend.

Barring any highly unlikely tremendous spikes between now and next Wednesday, Midcontinent indexes appear destined to slip below $7 for the first time since August 2005. In the September bidweek Midcontinent numbers jumped to well above $8, and they topped $10 in October and November before starting a slide back to current levels.

Despite the overall move higher as trading proceeded Thursday, all bidweek numbers were down from Wednesday, a Gulf Coast producer said. He perceived February trading as notably slowing down, saying apparently a lot was getting done in the first three days of this week.

“It’s extremely warm around here, 30% warmer than normal,” said a utility buyer in the Lower Midwest. In fact, his metro area may set a record for the warmest January ever, he added. “We still have a lot of gas in storage that we haven’t used” and which is under mandatory withdrawal requirements, the buyer said. In some cases it can be more economic to pay the storage operator’s penalty for leaving in gas above the withdrawal limits, he went on. He expects his company to take most of its storage out, but said it probably won’t quite meet contract ratchet levels. Obviously it won’t be buying any new baseload for February, he said.

The National Weather Service (NWS) continues to see mostly bearish conditions for gas prices into early February. In its six-to-10-day forecast for the Jan. 31-Feb. 4 period, the agency expects above normal temperatures almost everywhere west and north of a line running northward from western Louisiana until it begins to curve eastward in Iowa through southern Wisconsin and central Michigan and along the southern border of New York. The only exception in that area is a thin coastal sliver of Oregon and Northern California where normal readings are likely. NWS predicts below normal temperatures in South Carolina, Georgia and Florida along with the southeast half of Alabama and the southeast corner of North Carolina.

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