Next-day gas prices at Midwest and Great Lakes locations retreated in Monday's trading, but that weakness was no match for market gains in New England, the Mid-Atlantic, Gulf, Rockies and California. Overall the market gained 95 cents to $5.88.
Near-term weather proved to be the day's market driver, and the modest one-day temperature advance seen in and around the Great Lakes was overpowered by forecasts of bone-rattling cold in the Northeast. Futures prices slumped as short term traders aggressively sold at the pivotal $3 level.
At the close, March was down 7.2 cents to $2.879 and April had fallen 7.9 cents to $2.893. April crude oil gave up $1.36 to $49.45/bbl.
A one-day warm up was all it took to knock Midwest and Great Lakes prices off their lofty perch. Forecaster Wunderground.com predicted Chicago's 18-degree high on Monday would jump to a "balmy" 32 Tuesday before falling back to 19 on Wednesday. The seasonal high is 39. Milwaukee’s Monday high of 13 was seen reaching 34 on Tuesday but sliding back to 17 on Wednesday, 18 degrees below normal. Detroit's 13 maximum on Monday was anticipated to climb to 23 Tuesday before easing to 19 on Wednesday.
Tuesday packages on Alliance fell $1.67 to $5.53, and deliveries to the Chicago Citygates tumbled $2.34 to $4.47. Gas at the ANR Joliet Hub was seen $1.99 lower at $5.32, and gas on Michcon shed 32 cents to $5.64. Gas on Consumers slumped $1.07 to $5.69.
Market points upstream of the Midwest also eased. Gas at Northern Natural Ventura fell $2.18 to $4.95, and gas at Demarcation skidded $2.44 to $4.36.
New England and the East posted the day's greatest gains, as temperatures on Tuesday were expected to fall to 20 degrees below seasonal norms. Wunderground,com predicted the high in Boston Monday of 33 would fall to 18 on Tuesday before climbing back to 31 Wednesday. The normal high in Boston this time of year is 40. New Haven, CT's Monday high of 26 was seen sliding to 20 on Tuesday before reaching 35 Wednesday. The seasonal high also is 40. New York City's 37 high Monday was expected to fall to 23 on Tuesday and reach 37 on Wednesday, six degrees off the seasonal pace.
Deliveries to the Algonquin Citygates soared $13.88 to $27.41, and deliveries to Iroquois Waddington gained $2.97 to $14.14. Gas on Tennessee Zone 6 200 L vaulted $15.78 to $24.76.
Gas bound for New York City on Transco Zone 6 rose $3.07 to $23.03, and packages on Tetco M-3 added $6.43 to $18.27.
Marcellus points firmed as well. Gas on Transco Leidy rose 12 cents to $1.53, and packages on Tennessee Zone 4 Marcellus were quoted 18 cents higher at $1.50. Gas on Dominion South rose 51 cents to $3.16.
The National Weather Service in southeastern Massachusetts said "an Arctic airmass over the region [Monday evening] will result in near record cold along with dangerously cold wind chills. Weak low pressure passes offshore Tuesday night but close enough to bring a few inches of snow to Cape Cod and the islands. High pressure will result in mainly dry and cold conditions Wednesday through Sunday morning. A slow moving front with a series of low pressure waves may produce a variety of precipitation for the late Sunday into Monday time frame."
Industry consultant Genscape Inc. expects the persistent below-normal temperatures to keep demand high in eastern markets, enabling "Appalachia to make a run at the regional demand record of 22.97 Bcf/d established last Thursday.
“Genscape's Appalachia demand forecast currently predicts demand breaking 23 Bcf/d on Thursday and Friday. New England demand is forecast to reach a record high 4.23 Bcf/d by Friday; the previous high was set this Feb.2 at 4.21 Bcf/d.
"Southeast/Mid-Atlantic cities' highs will be in the upper 40s for the week, about 15 degrees below normal. Midwest and SEMA demand may see slight bumps later in the week, but for the most part are showing retreats from last week's strong numbers. Western gas markets will once again remain quiet with seasonal temperatures blanketing the West Coast and desert Southwest markets."
Futures traders saw sellers ready to pounce once prices reached $3.00. "Prices reached $3.00 early and traders just used that to take profits. $3.00 was an obvious target. It's just too cold for prices to sell off. Look for the rally to continue later in the week,” said a New York floor trader.
"At one level, the models are in excellent agreement by advertising a continued cold-dominated situation for the U.S., both this week and next week," said Commodity Weather Group President Matt Rogers in a Monday morning report to clients. "At another level, they are showing more disagreement than last week in terms of where the coldest anomalies will take place, especially by the 11-15 day, which is now fairly deep into March.
"For the six-10 day, the guidance offers general agreement that the coldest anomalies are found in the middle third of the U.S., including from upper Texas to the Midwest. We see more expanded cold into the western U.S. and less intense cold for the East Coast (especially on the European model side).
“The 11-15 day varies between more East-based cold on the American ensemble to more West-based on the Canadian. We favor a more central focus for the coldest anomalies, especially early in the period and then shift to East by late period, but confidence is lower for that time period."
Risk managers are focused on some changing basis relationships.
"Over the past year, the basis in the West has been relatively strong on a historical basis, but over the past couple months the Rockies basis has been starting to deteriorate," said DEVO Capital Management President Mike DeVooght. "It is difficult to say if we are seeing a structural long-term trend developing or temporary weakness because of the warmer West temperatures. We will be monitoring closely over the next few weeks. On a trade basis, if the $2.45 level is broken, we will liquidate our long speculative positions."
DeVooght said for trading accounts and end-users to hold long April $4.20 call options and short April $3.90 puts (liquidate if close under $2.45). Buy April $3.00 calls Monday morning, he said in a weekend note to clients. Producers were counseled to stand aside.
Tom Saal, vice president at INTL FC Stone in Miami in his work with Market Profile, was looking for the market to test last week's value area at $2.875-2.729 before moving on and "eventually" testing $3.252-3.025. He said market participants' behavior continues to reveal horizontal pricing and possible "bottoming" action. "Buyers be ready for hedge trading.”