Physical gas for Thursday delivery managed double-digit gains in Wednesday's trading as a strong screen pulled up all points trading in relationship to the Henry Hub, while most Northeast and eastern points were driven by weather changes and proximate market forces.
The surging screen was prompted by short covering and a broad-based rally in deeply oversold crude oil and petroleum products markets. Overall, the physical market added 14 cents, but greater exuberance was in play in the futures arena.
February gained 29.0 cents to $3.233, and March was higher by 27.6 cents to $3.208. February crude oil bounced $2.59 to $48.48/bbl.
Physical gas for delivery to New England and the Mid-Atlantic eased as forecasters called for rising temperatures into the weekend. AccuWeather.com forecast that the Wednesday high in Boston of 27 would increase to 31 Thursday and 34 on Friday, just 1 degree shy of the seasonal norm. Philadelphia's Wednesday maximum of 32 was seen climbing to 39 Thursday and to 40 on Friday, the norm for mid-January. In Washington, DC, Wednesday’s high of 34 was expected to jump to 43 Thursday and to 45 Friday, 2 degrees above normal.
Gas for delivery Thursday at the Algonquin Citygates dropped 69 cents to $10.80, and deliveries to Iroquois Waddington fell $1.55 to $6.13. Gas on Tennessee Zone 6 200 L skidded 93 cents to $9.97.
An industry veteran said he thought trading Thursday for Friday delivery in the Northeast would firm.
"I think you'll see an uptick on Algonquin and Tennessee in Thursday's trading,” he said, offering a caveat that Fridays were not indicative of the earlier portion of the week.
In the Mid-Atlantic, gas headed for New York City fell 14 cents to $4.67, and packages on Tetco M-3 lost 26 cents to $3.97.
Marcellus points were mixed. Gas on Millennium fell 16 cents gto $1.24, while gas on Transco Leidy shave 7 cents to average $1.01. On Tennessee Zone 4, Marcellus next-day gas gained 3 cents to $1.15, and parcels on Dominion South changed hands 4 cents higher at $1.64.
At Gulf points, prices rose in tandem with surging futures quotes. Deliveries to Transco Zone 3 added 22 cents to $3.11, and gas at the Henry Hub rose 24 cents tgo $3.13. Gas on Columbia Gulf Mainline gained 22 cents to $3.09, and parcels at Katy jumped 24 cents to $3.10.
Quotes in the Midwest also rose, in spite of weather trends suggesting rising temperatures. On Alliance, next-day gas was seen at $3.18, up 21 cents, and deliveries to the ANR Joliet Hub gained 20 cents to $3.17. Gas for Thursday delivery at the Chicago Citygates rose 19 cents to $3.15, and gas at Demarcation tacked on 18 cents to $3.09.
The near-term weather outlook called for moderation in the Midwest.
"Temperatures around Chicagoland will be on the rise through the end of the week and into the weekend, erasing the arctic chill that has been in place," said AccuWeather.com meteorologist Jordan Root. "High temperatures in the teens will be a thing of the past through at least the weekend. Temperatures will rise into the upper 20s to upper 30s through Saturday, and may even reach into the low 40s during the day on Saturday.
"The last time O'Hare Airport hit 40 degrees was back on Dec. 27. Temperatures so far in January are around 10 degrees below normal. Nighttime lows are set to rise back into the 20s over the next several nights as well.”
With the warmer temperatures will be dry weather, “as the main storm track shifts to the north,” Root said. “A couple systems are set to pass by the region over the next several days but will likely remain far enough north to not cause any issues in the way of precipitation.”
Futures traders were caught off guard by the blast higher. “Two hundred thousand contracts traded in the February contract and that is the highest I have ever seen," said a New York floor trader.
"This bad-boy [February] traded as high as $3.257, but I think it is all short covering. Initially some stops above $3.00 got triggered, and above that it continued to climb as everything across the board was up. Crude was up $2.50, and the RBOB was up 8 cents. Oil was down, down, down for the last two weeks, so you have to have some kind of correction in here.
“Even though natural gas is a domestic market, it keeps an eye on the others. Natgas reacted to the other markets” on Wednesday.
"Settling above $3.00 is a good sign, trading over 200,000 [231,000] contracts is huge," he added.
The trader inferred that Thursday's Energy Information Administration inventory report had some bullish input as well. He said traders were looking for a withdrawal of 224 Bcf, well above last week's 131 Bcf and a five-year average pull of 191 Bcf. Last year a record 268 Bcf was withdrawn.
IAF Advisors is calculating a pull of 231 Bcf, and ICAP Energy analysts see a 223 Bcf reduction. A Reuters poll of 24 traders and analysts revealed an average 224 Bcf withdrawal with a range of -182 Bcf to -255 Bcf.
Beyond the weekend, near-term weather forecasts called for sharply below-normal temperatures over key energy markets.
Longer term, weather forecasters expect colder temperatures by the last week of January but don't see the evidence as terribly convincing.
"We believe the onus still remains on colder temperatures to arrive if bearish weather sentiment is to ease or end longer term," said Natgasweather.com in its Wednesday morning report. "The problem is there's decent potential for cold to arrive after Jan. 23-24, but the data is not convincing, and until it is there will be wildly varying solutions produced by the weather models.
"In addition, this type of pattern can keep showing much colder temperatures in the longer range weather charts, but each day it gets closer, the arrival of cold Arctic temperatures keeps getting pushed back. We still like colder air spilling into the northern U.S. at times during the last week of January, but as we have been saying, it could just end up more seasonal instead of being brutally cold as Arctic air struggles to push southward out of Canada."
If National Weather Service (NWS) estimates of heating requirements across important population centers for the week ended Jan. 17 are correct, next week's inventory report may come closer to the five-year average draw of 175 Bcf.
NWS predicted that for the week ended Jan. 17, New England would see 283 heating degree days (HDD), or right at the seasonal norm. The Mid-Atlantic, including New York, New Jersey and Pennsylvania, should shiver under 269 HDD, or just six above its normal tally. The greater Midwest from Ohio to Wisconsin is expected to endure 305 HDD, or eight more than normal.
Technical analysts were not convinced that Tuesday's 15-cent rally would do any serious damage to the pervasive downtrend.
"With natgas reclaiming the $2.805 low, the bulls have managed to revive the case for bottoming action after a near death experience," said United ICAP technical analyst Brian LaRose. "Reviving and reestablishing are two very different things, though. To have us entertaining the case for a bottom forming, bulls still need to push natgas back above the $3.313-3.325-3.371-3.378-3.385 zone and shift the technicals in their favor."