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Cash Surges; Nymex Floor Traders Still Expect to Be Around

Physical natural gas for Wednesday delivery bounded higher in Tuesday's trading as forecasts of additional crushing snow and cold were priced into near-term deliveries. Mega-dollar gains were posted at New England, New York and Mid-Atlantic market points as next-day peak power prices soared and higher loads were expected. The overall gain was a stout 52 cents to $3.47.

Futures traders were rattled by reports of more distant cold and elected to cover short positions. At the close March had advanced 8.0 cents to $2.677 and April was up by 7.9 cents to $2.704. March crude oil ended its run higher dropping $2.84 to $50.02/bbl.

New England weather forecasts called for brutal snow and cold. Forecaster Wunderground.com said Boston's Tuesday high of 31 would drop to 22 by Wednesday before climbing to 26 Thursday. The normal early February high in Boston is 38. New York City was forecast to see a high Tuesday of 37 fall to 32 by Wednesday and rise to 34 Thursday. The seasonal high in New York City is 41.

Delivery points in New England saw next-day quotes rise by more than $3 and spot prices on New York pipelines posted $5 advances. Gas at the Algonquin Citygates gained a stout $4.07 to $16.43 and gas on Tennessee Zone 6 200 L jumped $3.28 to $15.84.

Less active New England points also saw prices rise. Deliveries to Algonquin Receipts added $3.25 to $16.16, and gas at Dracut gained $4.01 to $15.81.

Gas at Iroquois Waddington vaulted $5.08 to $10.51. Gas at Iroquois Zone 2 rose $5.97 to $12.95.

Packages on Transco Zone 6 into New York jumped $3.83 to $11.35, and gas on Tetco M-3 rose $1.12 to $4.18.

Forecasters are saying it's not over yet. Jeff Masters, Wunderground.com meteorologist, said, "The latest storm is a long-duration event that's depositing a foot or more across most of New England, but with small-scale bands expected to enhance the totals from the Boston area northward to New Hampshire. With 20 inches on the ground before this weekend's storm, Boston could end up with an additional 18-24 inches by Tuesday. Yet another storm looms for Thursday, a powerful Nor'easter projected to intensify just offshore -- but close enough that only a slight change in track could produce very heavy snow and high wind.

"Another Nor'easter could be in the offing on Sunday, though it is too early to assess the probabilities of this occurring. The city is already struggling to deal with the massive logistics of snow removal; schools will be closed Monday and Tuesday. In a press conference on Sunday Boston mayor Martin Walsh asked residents for patience and vigilance. 'No other city, no other mayor, has to deal with this much snow,' Walsh said. 'Maybe in Buffalo or Alaska.' The coldest temperatures so far this year could plague New England late this week into early next week, with much of the region dipping well below 0 degrees F for lows and struggling to get out of the single digits (if even that) for highs," Masters said.

Next-day peak power prices across New York and New England surged higher as well. Intercontinental Exchange reported that Wednesday peak power at the ISO New England's Massachusetts Hub rose $32.16 to $128.17/MWh and deliveries to the New York ISO's Zone G (eastern New York) added $15.67 to $67.67/MWh. ISO Zone A (western New York) saw next-day peak power at $42.00/MWh, up $3.62, and peak power at the PJM West terminal rose $3.42 to 39.13/MWh.

In the Midwest, prices staged double-digit gains. Thursday gas on Alliance rose 21 cents to $2.88, and deliveries at the Chicago Citygates added 13 cents to $2.76. On Consumers next-day gas rose 11 cents to $2.81, and parcels on Michcon came in 13 cents higher at $2.85.

Natural gas futures traders on the floor of Nymex see the end of floor trading as changing the format of the way they do business, but envision that their services will still be needed.

Nine years after the New York Mercantile Exchange (Nymex) inked an agreement with CME Group's Chicago Mercantile Exchange to offer side-by-side trading of its products on the open outcry floor and on CME's Globex electronic exchange, CME Group, which ended up acquiring Nymex in 2008, said late last Tuesday it will close most of its floor futures trading pits -- including natural gas -- in Chicago and New York by July 2. (see Daily GPIFeb. 5).

"I've got two floor traders left I work with and they said 'Whatever, we'll just go upstairs or figure out something. We are not just going to leave because our clients still want us to do things for them.' Besides EFPs (exchange of futures for physicals), EFSs (exchange of futures for swaps) and options will still go on," said a California broker.

"When you do an EFP you still call the floor dudes, and they get it done right away. That is still a function that is needed. So if that is gone are we going to have to deal with some upstairs central desk location where it takes longer?

"The one thing that does not change is that price discovery continues and centralized clearing will continue, for obvious reasons. Maybe the exchanges should never have gone public, then they wouldn't have to worry so much about their costs," the broker said.

Analysts aren't looking for prices to stray far from recent ranges in the near term. "With output remaining sufficiently high to force much stronger than usual storage builds through the early part of the injection cycle, the likelihood of re-establishing a $3 handle would appear limited short of some major pipeline disruptions," said Jim Ritterbusch of Ritterbusch and Associates in Tuesday morning comments to clients.

"On the demand side, we haven't evidenced as much gas to coal switching as we had previously expected. Furthermore, consumption within the important industrial segment that comprises almost one-fourth of total U.S. demand is not showing much of an upswing despite a stronger rebound in U.S. economic activity than had been anticipated. Looking out over the next couple of sessions, it appears that values could remain confined largely to [Monday's] approximate 12-cent range prior to the usual Thursday price spike that could potentially inspire some fresh price lows."

MDA Weather Services in its Tuesday morning 11- to 15-day outlook said, "overall changes were minor in this period as the combination of the -EPO [Eastern Pacific Oscillation] and -WPO [Western Pacific Oscillation] continue to bring ridging to western North America and northward to Alaska. The result will be ongoing above-normal temperatures from the Rockies to the West, while the East continues to see variability stemming from high pressure dropping southward from Canada. The region from the Midwest to the East favors below-normal temperatures as a result, and computer models suggest stronger cold potential at times. This risk is most prevalent in the Plains, where the European model brings belows [normal temperatures]."

MDA said risks to the forecast include the PNA (Pacific North America) ridge shifting more north and west, and if that were to happen a greater expanse of below-normal temperatures would be possible in the central U.S. It added that the European model showed less warmth in the West.

Tom Saal, vice president at INTL FC Stone in Miami, in his work with Market Profile said to expect the market to test Monday's value area at $2.608-2.582 before moving on and "eventually" testing $2.943-2.911. "Buyers be ready. [Monday's] non-trend day continues to show horizontal pricing and possible 'bottoming' action."

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