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Physical NatGas Posts Gains While Futures Hold Steady

Next-day gas traded modestly higher Tuesday as brief cold weather patterns were expected to traverse the country without generating any meaningful and long-lasting cold.

A combination of a benign weather outlook and tranquil power markets gave traders little incentive to make incremental purchases of gas for power generation, and the NGI National Spot Gas Average rose three cents to $2.11. Futures trading was equally uninspired as traders see the market remaining in its ongoing rangebound pattern. At the close January had slipped 4 tenths of a cent to $2.231 and February was down five-tenths of a cent to $2.285. January crude oil gained 20 cents to $41.85/bbl.

Futures traders expressed frustration. "It's not like you get a 10- or 15-cent move and it looks like a slow grind to the downside," said a New York floor trader.

"If you put a gun to my head and asked if we were likely to trade $2.45 or $2.05 I would say $2.05. I don't think you will get anything that is going to spike this market 15 or 20 cents, and I think we grind down to $2.05 or $2 and see if there is any news that can move this market higher.

"The next week and a half looks like a slow move lower, and we'll probably break below $2.20 Wednesday," he said.

Weather forecasters aren't seeing anything until mid-month either. Natgasweather.com in a noon Tuesday update said, "Fresh mid-day weather data continues streaming in and we aren't seeing any significant changes compared to the daily report. Overall, we expect less than impressive cold blasts impacting the U.S. for the next 12-13 days, but still seeing potential for colder temperatures going into the second half of December.

"Additional weather systems will move into the West and South later this week and weekend, but of importance, they will all fail in tapping any truly cold air, which is needed to bring stronger than normal natgas demand over the important natgas regions of the northern and eastern U.S. We view this as bearish for the short and medium term.

"However, we do see opportunity for colder temperatures to push into the northern U.S. after Dec. 13th, especially around the 17th. Simply put, nothing has changed bigger picture as temperatures just aren't cold enough over the U.S. to produce prolonged stronger than normal natgas demand for another solid 12-13 days.

"It's worth mentioning the latest 12z operational GFS [Global Forecast System] didn't produce a very cold solution at all, showing the weather models still have a ways to go to before expecting bearish weather sentiment to end," the forecaster added.

Analysts see a resilient market for the time being, but the question remains: how long can it withstand an ever-increasing storage surplus? "This market has demonstrated resiliency so far this week in holding steady in the face of seemingly bearish weather outlooks. Updates to the one- to two-week views that are now stretching toward the middle of this month are still favoring above-normal trends, particularly across the upper Midcontinent in areas that would include major metropolitan cities such as Chicago," said Jim Ritterbusch of Ritterbusch and Associates in a Tuesday morning note to clients.

"Should these mild forecasts continue for another two to three days, the market will be forced to price in some sharply upsized supply withdrawals to be issued all the way out to Christmas eve...[A] record storage that had forced a sizable supply surplus is apt to see a further increase in the supply overhang. While an argument can certainly be made that occasional cold spells will be developing next month, such cold spells will likely be viewed as a requirement needed to reduce supply to manageable levels during next year's injection cycle."

Tom Saal, vice president at FC Stone Latin America LLC, in his work with Market Profile was looking for the market to test Monday's value area at $2.245 to $2.227 and eventually test $2.336 to $2.294 and $2.504 to $2.458.

In physical market trading, traders couldn't get a boost from either short term temperature forecasts or next-day power quotes. Forecaster Wunderground.com predicted the Tuesday high in New York City of 51 degrees would rise to 55 Wednesday and ease to 52 Thursday. The normal high in New York City is 48. Chicago's 44 high Tuesday was expected to slide to 39 Wednesday and climb back to 42 Thursday. The seasonal high in the Windy City is 40.

Gas at the normally volatile Algonquin Citygate shed 6 cents to $2.29, and deliveries to Iroquois, Waddington rose 2 cents to $2.30. Gas on Tenn Zone 6 200L rose a penny to $2.45.

Next-day gas on Texas Eastern M-3, Delivery was seen 4 cents higher at $1.26, and packages headed for New York City on Transco Zone 6 fell 8 cents to $2.03.

Next-day power held steady. Intercontinental Exchange reported on-peak Wednesday power at the ISO New England's Massachusetts Hub rose 11 cents to $29.14/MWh and peak power at the PJM West terminal was quoted $1.21 lower at $28.07/MWh.

Other hubs were mixed. Chicago Citygate changed hands at $2.26, up a penny, and gas at the Henry Hub rose 6 cents to $2.15. Deliveries to Transco Zone 4 added 7 cents to $2.19, and gas at Opal was seen at $2.28, down 2 cents.

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