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Marcellus NatGas Cash Points Hit Record Lows; Futures Retreat

Physical natural gas for Wednesday delivery continued to keep the December slide alive Tuesday as obscenely warm temperatures dominated the East and Midwest.

Particularly hard hit was the Marcellus Shale region, where several market points posted all-time lows and talk circulated of shut-in production. The NGI National Spot Gas Average dropped 8 cents to $1.62, and eastern points, on average, shed more than 20 cents. Futures prices had a hard time standing the rarefied air left in Monday's trading and gave back a portion of the gains. At the close January had fallen 2.3 cents to $1.888 and February was off 3.2 cents to $1.955. February crude oil added 33 cents to $36.14/bbl.

Several Marcellus and Appalachian delivery points not only saw prices post double-digit declines but also recorded record low prices, according to NGI data. At Dominion South gas for Wednesday’s flow changed hands at an average of 59 cents, down 18 cents from Monday, and 13 cents less than the record low of July 2015. Tennessee Zone 4 Station 313 Pool came in at 68 cents, down 17 cents and 8 cents less than the record made Dec. 11, 2015. Texas Eastern M-2, 30 Receipt was quoted at 63 cents, down 15 cents from Monday and a nickel less than the all-time record low of 68 cents seen in July 2015.

Next-day prices dropped at Marcellus points as an imbalance in supply and demand increased by just over a half Bcf from Monday to Tuesday. According to figures from Genscape, Monday's Appalachian supply-demand figures consisted of supply of 19.67 Bcf and demand of 18.65 Bcf, leaving a 1.02 Bcf oversupply. By Tuesday supply was running 18.95 Bcf and demand had dropped to 17.31 Bcf, or a 1.64 Bcf imbalance.

Temperature forecasts also kept buyers on the bench. Forecaster Wunderground.com reported Tuesday's high of 40 in Chicago would jump to 61 Wednesday and settle back down to 46 on Thursday, 13 degrees above normal. In Philadelphia, Tuesday's high of 59 was anticipated to jump to 65 Wednesday before climbing further to 73 Thursday. The normal high in Philadelphia this time of year is 40.

Other eastern points also weakened. Gas at the Algonquin Citygates was seen at $1.33, down 26 cents, and deliveries to Iroquois, Waddington shed 6 cents to $1.77. Gas on Tenn Zone 6 200L changed hands at $1.62, down 42 cents.

Midwest market points weren't hit quite so hard. Gas on Alliance was quoted 3 cents lower at $1.80, and deliveries to the Chicago Citygate dropped 7 cents to $1.79. Gas on Consumers fell 3 cents to $1.80, and packages on Michigan Consolidated fell 4 cents to $1.81.

"[Monday] the [futures] market went up, but we are hearing of producers to some degree shutting down production," said a Michigan trader. "We are getting word from some that we buy gas from that they are not doing well either. It's a rough time. It's nice to have warmer weather, but producers in some cases are below their breakeven.

"Michigan Consolidated has told us that we don't have to honor withdrawal tolerances for December and January. They are bursting at the seams with gas."

Overnight weather model runs changed little, and above-normal temperatures are seen into next year. "Powerful warmth continues to surge this week across the Midwest, East and South, with plenty of warm records to be broken in the coming days," said Commodity Weather Group in its Tuesday morning report. "Our short-range changes were same-to-warmer for the Midwest and East, especially on low temperatures. Otherwise, the six-10 day is edging a bit colder for the West with the Midwest to New England also slightly cooler to colder versus yesterday's update. Texas also shifts slightly cooler later next week.

"The 11-15 day is slightly faster, with cooling timing for this cooler to colder volatility around the New Year's holiday and into the first days of January. In fact, the biggest model debate point this morning is how fast to try re-warming the pattern across the northern half of the U.S. The powerful El Nino background state supports the view that any colder volatility may only last about a week or so," said Matt Rogers, president of the firm.

In spite of Monday's double-digit romp higher, analysts don't see a continuation and look for the bearish fundamentals to reassert themselves. "Although [Monday's] strengthening in the curve sent off some bullish vibes, we are not seeing enough shift in the balances to suggest much additional upside price follow-through," said Jim Ritterbusch of Ritterbusch and Associates in closing comments to clients Monday. "We look for February futures to encounter staunch resistance above the $2 mark as was evidenced today since the short-term weather views are still not indicating significant below-normal trends that would support $2 gas.

"Thursday's EIA storage report may also force some renewed selling since our expected 25 Bcf withdrawal would be downsized by almost 100 Bcf from five-year average declines. And with this implied huge expansion in the supply surplus likely to stretch further again next week, it would appear that some renewed selling will be seen going forward. We are maintaining a bearish view as we have revised downside possibilities to about the $1.61 area. Shorts within the $2.00-2.06 zone would be suggested with stop protection advised above $2.21 on a close-only basis."

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