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Cash Markets Firm, But Futures Trade Like a Turkey; January Drops a Nickel

It was a tale of two markets in pre-Thanksgiving Day trading Wednesday. Physical prices staged extra-large gains in California, the Midcontinent, and Great Lakes, combined with medium gains at Gulf Points, to outdistance weak quotes in the Mid-Atlantic, Marcellus and New England.

Overall, the market was flat. Futures trading drifted to an uninspired close with what seemed like a promising advance off a supportive storage report, down 162 Bcf, from the Energy Information Administration (EIA). However, trading slid into the loss column by the end of the session.

At the close, January was down 4.8 cents to $4.355 and February had retreated 4.3 cents to $4.334. January crude oil lost 40 cents to $73.69/bbl.

Quotes in the Midwest came in with solid gains as temperatures were forecast to be well below normal over the holiday weekend. AccuWeather.com predicted the high in Minneapolis Wednesday of 27 degrees would plunge to 11 Thursday and make it back to all of 14 by Monday. The seasonal high in Minneapolis is 34. Chicago's 30 high on Wednesday was expected to slip to 25 Thursday and hit 33 on Monday. Normally, the Windy City can expect a high of 43 this time of year. Indianapolis' 36 high on Wednesday was anticipated to slide to 33 on Thursday before making it to 41 Monday.

Gas for Monday delivery on Alliance gained 14 cents to $4.62, and deliveries to Joliet added 14 cents to $4.61. At the Chicago Citygates, gas gained 12 cents to $4.59 and deliveries to Consumers rose 14 cents to $4.63. Parcels on Michcon rose 11 cents to $4.65.

Gas buyers in the Great Lakes and Midwest were taking no chances on the weather forecasts.

"Temperatures will plummet across the Minneapolis area following Thanksgiving Day as frigid air holds through the weekend,” according to AccuWeather.com. “A blast of arctic air will arrive for the holiday, keeping highs in the teens. Thanksgiving Day highs will hover near 15 F with a mix of clouds and sun throughout the day.

"Some recovery in temperatures are expected by Saturday before another cold front passes through the region at night bringing another unseasonably cold day to round out the weekend on Sunday," said AccuWeather.com metereologist Erik Pindrock.

"While Friday will be a little warmer, the chance for snow showers will continue across the Minneapolis area throughout the day. By Saturday, it will be windy and cooler with times of sun and clouds. Temperatures will hover in the 30s during the day before sinking into the teens Sunday. Looking ahead into the new week, temperatures will hold in the 20s throughout the week. Sunshine can be expected into midweek, before the chance for snow returns next Thursday."

Robust gains were also seen on the West Coast. Deliveries to Malin rose by 16 cents to $4.33, and gas at the PG&E Citygates added 19 cents to $4.66. At the SoCal Citygates, Monday parcels were seen at $4.59, up 16 cents, and SoCal Border parcels changed hands at $4.41, up 14 cents. Deliveries on El Paso S Mainline gained 15 cents as well to $4.40.

Eastern points for the most part took it on the chin. Monday packages at the Algonquin Citygates tumbled $1.09 to $5.55, and at Iroquois Waddington, gas was seen at $4.78, down a penny. Gas on Tennessee Zone 6 200 L shed $1.06 to $5.41.

Transco Zone 6 NY fell 13 cents to $4.00 and deliveries to Tetco M-3 skidded 26 cents to $3.49.

Futures traders going into the Wednesday noon release of EIA storage data expected the number to be big -- really big. Ritterbusch and Associates forecast a withdrawal of 145 Bcf, and ICAP Energy calculated a pull of 160 Bcf. A Reuters poll of 21 traders and analysts showed an average of 150 Bcf with a range of 124-168 Bcf.

The actual withdrawal of 162 Bcf was about 12 Bcf above market surveys and independent analyst projections, and bulls attempted to immediately seize control.

Shortly after the EIA report, January futures rose to a high of $4.529, and by 12:15 p.m. the contract had slipped slightly to $4.492, still up 8.9 cents from Tuesday's settlement.

Analysts saw the report as something of an outlier, with more seasonal numbers likely in upcoming reports.

"The 162 Bcf net withdrawal for last week was near the upper end of the range of expectations most likely due to heating demand spiking more than anticipating off the recent cold snap," said Tim Evans of Citi Futures Perspective.

“The price reaction will still be limited by the swing to more moderate temperatures that will likely translate into bearish storage comparisons over the next three weeks. We continue to see some risk of a 'sell the news' reaction. A break below $4.35 in January futures would tend to confirm a short-term reversal to the downside."

Inventories now stand at 3,432 Bcf and are 346 Bcf less than last year and 400 Bcf below the five-year average. In the East Region 89 Bcf was withdrawn, and the West Region saw inventories down by 18 Bcf. Inventories in the Producing Region fell by 55 Bcf.

Futures traders said the market had no further upward momentum after the release of the storage data and saw traders "just cleaning up" ahead of the holiday.

Prior to the close one trader suggested that if the market could hold $4.41-4.43 it might serve as not only a positive close but also a point to stage an advance next week. It was not to be.

Weather forecasts may have caught the markets off guard Tuesday.

"A quick, but heavy, burst of rain and snow” was set to occur Wednesday across the East Coast, “with inconveniently timed snowfall of several inches for the Northeast," said Natgasweather.com in a Wednesday morning report.

"Colder than normal temperatures will follow to drive stronger than normal heating demand over the Midwest and much of the eastern U.S. Thanksgiving day and Black Friday. However, natgas demand will rapidly ease late this weekend and early next week as all but the extreme northern U.S. warms.”

Milder temperatures will only last around three to four days as additional chilly weather systems arrive with more seasonable conditions and periods of rain and snow late next week, which is likely faster than the markets were expecting.

"There could be a few colder weather system to follow if the Pacific jet fizzles or briefly shifts offshore around December 6-9th, which will need close watching in case they trend colder."

Analysts for now see the market trying to adjust to temperature forecasts ahead of the long holiday period.

"Price volatility remains the rule of the day in this market as virtually all of yesterday's losses were quickly erased in today's trade," said Jim Ritterbusch of Ritterbusch and Associates on Tuesday. "Some of this strength appeared related to a continued mix of short-term temperature forecasts with some suggesting less temperature moderation next week.

“But some gains also appeared to spin off of a strong December contract expiration that saw shorts on the defensive with much rolling of bearish positions forward into the first quarter 2015 part of the curve. Some of [Tuesday's] volatility may have also related to positioning ahead of the weekly EIA release. Our expected large withdrawal of about 145 Bcf appears proximate to average street ideas thus far.

"But we will reiterate that any sharp deviations of more than 15 Bcf in either direction could see limited price response with the market heavily focused on month-end positioning ahead of a holiday that could bring some further adjustments in the short-term temperature views.”

The price rally on Tuesday “lifted January futures back up to around the middle of our projected short-term trading range of between about $4.05 and $4.60. Consequently, we will caution against either long or short positions at current levels as we will advise trading off of our projected parameters while looking for a test of the low side to begin establishing deferred bull spreads again."

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