Physical gas for Wednesday delivery endured a broad setback in Tuesday's trading, with only a few scattered points in the West and Texas making it into the plus column.
Losses were generally from 5 to 10 cents as weather forecasts were expected to continue to moderate through Wednesday. The market overall averaged an 8-cent loss. Futures posted a double-digit loss as present mild conditions joined forces with expectations that the real impact of cold Canadian air may not be until after the 1st of the year. At the close, January had fallen 10.0 cents to $3.619 and February had racked up a 9.5-cent loss to $3.635. January crude oil stabilized, at least for the moment, at $55.93, up 2 cents.
Next-day gas at eastern points fell as Wednesday temperatures in key population centers were expected to be as much as 10 degrees above normal. AccuWeather.com predicted that the high in Boston Tuesday of 43 would rise to 49 Wednesday before moderating to 45 on Thursday. The normal high in Boston is 41. New York City's "toasty" high of 50 Tuesday was seen rising to 53 on Wednesday before dropping to 44 on Thursday. The seasonal high in New York is 42. Philadelphia's 52 high on Tuesday was expected to hold for Wednesday and slide to 44 Thursday. The normal mid-December high in Philadelphia is 44.
Next-day gas on Millennium fell 10 cents to $2.22, but thinly traded Algonquin Citygates added 15 cents to $4.32. Gas at Iroquois Waddington fell 14 cents to $3.91, and deliveries on Tennessee Zone 6 200 L fell 7 cents to $4.25.
In the Mid-Atlantic, next-day parcels on gas bound for New York City on Transco Zone 6 shed 12 cents to $3.60, and gas on Tetco M-3 was off 14 cents to $3.03.
In the Marcellus, deliveries on Transco Leidy came in 8 cents lower at $1.93, and parcels on Tennessee Zone 4 Marcellus slid 11 cents to $1.91. Gas on Dominion South retreated 10 cents to $2.49.
Meteorologists are looking for moderate weather in New York City into the weekend. "The weather through Friday will be free of snow and ice for the New York City area. However, wintry precipitation is possible this weekend," said AccuWeather.com meteorologist Alex Sosnowski.
"Mild weather is in store through Wednesday with temperatures reaching the 50 degree F mark in some areas, [and] the normal average high for the city during the third week of December is in the lower 40s. Chilly air will settle into the region Thursday into Friday ahead of a storm system forecast to move up from the South Central states this weekend. The chilly air will bring two to three days of sunshine before the next storm moves in."
The Gulf Coast and Rockies were not immune to market weakness. Deliveries Wednesday on Columbia Gulf Mainline were seen off 8 cents to $3.50, and gas at the Henry Hub was quoted 10 cents lower at $3.56. On Tennessee 500 L, gas changed hands down 7 cents at $3.55, and on ANR SE, Wednesday parcels came in 5 cents lower at $3.51. At Katy, next-day gas fell 4 cents to $3.51.
Gas at the Cheyenne Hub lost a nickel to $3.49, and gas on CIG Mainline was quoted 5 cents lower as well to $3.52. Deliveries to Opal changed hands at $3.57, down 3 cents, and Northwest Pipeline WY was one of the few locations to register a gain, adding a nickel to $3.60.
Forecasters are calling for cooler, more seasonal temperatures in Chicago by midweek. "After a brief December warmup across the Midwest, colder air will make a comeback to the region," said AccuWeather.com meteorologist Becky Elliott.
"Rain will end as a rain or snow shower on Tuesday following wet weather on Monday and Monday night. Colder air will follow the change to snow, dipping down into the 20s by the overnight hours. Little to no accumulation is expected from any snow shower that moves over the area."
Futures traders were wondering what happened to Friday's 16-cent surge. "The unseasonable warm weather in the consuming region is taking its toll on Sunday's gap up and has all been taken away and then some," said Drew Wozniak, vice president at ICAP Energy. "It looks like bulls will have to wait until the new year for any real chance at having the storage deficit to come into play."
Teri Viswanath, director of natural gas trading strategy at BNP Paribas, wondered, "Why the sell-off this morning? Of late, there are numerous valid reasons for natural gas price weakness: sympathy sell-off with crude oil futures, weak cash prices and/or anemic weekly inventory withdrawals. However, in our opinion, the delayed return of cold weather is the root cause of why natural gas prices remain anchored at their seasonal lows. As cold as it was in November, it's as mild or warm in December with only a hint of cold weather in January.
"Make no mistake, the return of legitimate cold air is still on track toward month-end. Indeed as of this morning, there is good model agreement of below-normal temperatures extending through the north-central states into Texas by next weekend. What's more, this potential cold recharge at the start of next month will likely be reflected in the official 30 day outlook, to be released this Thursday by the U.S. Climate Prediction Center.
"However, the unseasonably warm weather that has persisted through the month now necessitates extreme conditions ahead in order to avert a surplus. Last month, we warned that the industry would likely confront physical challenges in managing excess supplies next summer, should winter carry-out stock levels exceed 1.7 Tcf. In the absence of persistent cold weather through the balance of the season, an unmanageable level of end-of-season inventories now appears inevitable."
Top traders don't see the market outside of a broad trading range. "This market saw an unusually wide trading range as early buying dissipated with some spillover likely from the sharp oil price declines [Monday]," said Jim Ritterbusch of Ritterbusch and Associates. "While some of the temperature forecasts showed significant shifts during the past weekend, consensus of expectations appears to lean in favor of a shift away from recent mild patterns and toward normal tendencies next week. And while some colder than normal views are beginning to show up toward month's end, they don't yet appear sufficiently pronounced to spur a sustainable price rally.
"Furthermore, the market is being forced to focus on a couple of sharply downsized withdrawals that are accommodating a huge downshift from last year's heavy decline. In this week's data, we will be expecting a draw in the 55-58 Bcf region that would compare with last year's 150 Bcf drop in the five-year average decline of about 110 Bcf. All in all, we are on the sidelines at current levels given our expectation for a trading range of about $3.55-4.00.
Technical analysts are looking lower. "[It] very much looks like Monday's opening gap higher marked the end of a minor correction. If this is the case, fresh lows are on tap for this week," said Brian LaRose, a technical analyst with United ICAP, in a note to clients. "For January natgas, that means room down to $3.402-3.305 next. This zone represents 1=5 from $4.689 and "a"="c" from $5.091. To derail the case for a round of new lows bulls need to stage a reversal and clear $4.057 before $3.585 can be broken."