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Northeast Gains Amid Sea of Red Ink; Futures Spiral Lower

Next-day gas prices Tuesday in the Northeast generally took their cue from near-term weather forecasts and a firm power market, but market centers and producing zones more in alignment with the Henry Hub followed the free-falling futures market and shed more than a dime. The overall market loss was 15 cents.

Over the holiday weekend forecasters confirmed the poor chances for cold Canadian air to make much penetration of major U.S. energy markets and prices tumbled. At the close February had fallen 29.6 cents to $2.831 and March was off 26.7 cents to $2.820. February crude oil settled at $46.39/bbl. down $2.30.

Next-day gas in the Northeast was mostly higher as next-day temperatures throughout New England were forecast to dip, and Wednesday peak power firmed. Wunderground.com predicted that the high Tuesday in Hanover, NH, of 29 would slide to 26 Wednesday before rising to 31 Thursday. The seasonal high in Hanover is 29. Boston's Tuesday high of 38 was seen down to 30 Wednesday before climbing to 34 Thursday. The seasonal high in Boston is 35. Hartford, CT's 42 high Tuesday slid to 34 Wednesday before making it back to 35 Thursday. The normal high in Hartford is 34 this time of year.

Gas at the Algonquin Citygates Wednesday was quoted at $8.86, up $1.18, and deliveries to normally thinly traded Dracut gained $1.16 to $8.70. Gas on Tennessee Zone 6 200 L fell 23 cents to $8.67.

Marcellus points saw prices mixed. Gas on Millennium rose 1 cent to $1.15, and packages on Transco Leidy were off 2 cents to $1.04. On Tennessee Zone 4 Marcellus, Wednesday packages changed hands at $1.06, down 6 cents, and gas on Dominion South retreated 14 cents to $1.57.

Gas in the Mid-Atlantic took double-digit hits. Gas bound for New York City on Transco Zone 6 fell $1.70 to $3.28, and deliveries to Tetco M-3 were quoted 31 cents lower at $3.12.

The National Weather Service (NWS) in southeast Massachusetts expected "dry and seasonably cold weather through Wednesday. Low pressure passing well south of New England Wednesday night into Thursday may bring a period of light snow showers/flurries. High pressure will build into the region Thursday night and Friday bringing dry weather. Odds favor a miss or glancing blow from coastal storm Saturday...although we can not rule out a more significant impact. Next Sunday and Monday will likely be dry and chilly."

IntercontinentalExchange reported that peak power Wednesday at the ISO New England's Massachusetts Hub gained $8.12 to $71.50/MWh, and peak power Wednesday at the PJM West terminal gained $4.21 to $37.52/MWh.

Midwest and Gulf market points headed south along with collapsing futures. On Transco Zone 3 next-day deliveries fell 16 cents to $2.91, and on Columbia Gulf Mainline next-day gas was seen at $2.84, down 15 cents. Gas at the Henry Hub came in at $2.92, down 17 cents and deliveries to Tennessee 500 L skidded 18 cents to $2.85. Gas at Katy fell 16 cents to $2.84.

Midwest and Great Lakes locations were expected to see a pattern of falling temperatures with some snow, but that didn't halt the decline in next day gas prices. On Alliance, Wednesday packages shed 15 cents to $2.89, and deliveries to the ANR Joliet Hub fell 15 cents to $2.89. Gas at the Chicago Citygates lost 14 cents to $2.88. On Consumers, Wednesday packages came in at $2.94, down 12 cents, and gas at Demarcation gave up 13 cents to $2.83.

Wunderground.com predicted that the high in Chicago Tuesday of 40 would slide to 35 Wednesday and ease further to 33 by Thursday. NWS in Chicago said the area was looking at the possibility of "drizzle/freezing drizzle and light accumulating snow in association with low pressure approaching from the northern plains tonight."

Forecasters noted cold, Canadian air lurks north of the eastern U.S., but indications are not clear that it will make any concerted move south anytime soon. "There will continue to be weather systems tracking across the northern U.S. Jan. 29-Feb. 2 that will attempt to tap extremely cold Arctic air, but the data continues to show it won't be easy for the cold to cross into the U.S. and is likely to only graze the upper Midwest and Northeast with frigid temperatures,” said Natgasweather.com in its morning forecast.

"The weather data is still struggling with the coming pattern, so it will be important to watch the Arctic cold pool closely because if the weather data were to trend further south with this air mass around the Feb. 1, very strong heating demand would result. However, there is still nothing convincing showing this is going to happen, and for now, we will continue to expect seasonal cold blasts into the first week of February over the northern U.S., with relatively mild temperatures over the western, central, and southern U.S.”

The changed weather landscape has prompted some analysts to revise their trading parameters. "Today's updated weather forecasts reflect substantially warmer changes since Friday, with the gas-weighted heating degree days for the balance of the month now sliding below the 10-year average levels," said Teri Viswanath, director of commodity strategy for natural gas at BNP Paribas. "We note that the forecast for the current week is warmer east of the Rockies, and next week now only retains below normal temperatures along the far eastern seaboard. And while the first week of February looks cooler than next week, most modeling shows the cold weather limited to the Northeast and not the Midwest or Plains where a stronger pattern of heating demand could develop.

"Last week we noted that the return of cold weather at the start of February had seemingly enabled a $3 price floor to develop. The considerably warmer outlook for the balance of the month, however, has converted last week's price floor to a ceiling as traders once again hike end-of-season stock estimates."  

Tom Saal, vice president at INTL FC Stone in Miami, exhorted traders before the open to take a close look at the weekly bar chart. He said the chart shows a "textbook reversal bottom" along with oversold conditions. "Look to test trend line and first Fibonacci retracement level at $3.617. It will take time," he said in a Tuesday morning note to clients.

For those with not as much time market technicians see the market stalled. "[We are] stuck in neutral territory as we enter the week. Unless the bulls can propel natgas up and over the thick cluster of resistance stretching from $3.313 to $3.465 we have no case for a bottom," said Brian LaRose, a market technician at United ICAP. “At the same time, bears have no case for fresh lows unless they can crack $2.783. Clear resistance and the next challenge for the bulls will be $3.659. Break support and there is room down to 2.581 next."

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