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Physical NatGas, Futures Upward Bound as Weather Regime Seen Changing

Physical natural gas prices Monday leapfrogged higher as a combination of weather forecasts calling for more seasonal conditions, a strong screen and a soon-to-expire January contract prompted double-digit gains across the board.

A few points followed byNGI were flat, but the NGI National Spot Gas Average soared 67 cents to $2.23, and some points measured their moves in dollars.

Futures traders noted that the seemingly never ending succession of warmer to much-warmer-than-normal weather forecasts may have finally come to an end. At the close, January was 19.9 cents higher at $2.228, and February had risen 17.7 cents to $2.256. February crude oil retreated $1.29 to $36.81/bbl.

On Christmas Eve in Boston the high was 69 degrees, but over the extended holiday period forecasts changed quickly. According to AccuWeather.com, Monday's forecast high for Boston was 33, with a high Tuesday expected of 41. Wednesday's maximum was seen as reaching 43, 6 degrees above normal.

Next-day gas at the Algonquin Citygate soared $2.98 to $4.54, and gas on Iroquois, Waddington added 92 cents to $2.47. Deliveries on Tenn Zone 6 200L added a potent $2.41 to $4.24.

Deliveries to Tetco M-3 rose by 44 cents to $1.23, and gas bound for New York City on Transco Zone 6 jumped $1.07 to $1.97.

"Colder air will expand and settle in across the central and eastern United States during the last hours of 2015 and first several days of January 2016," said AccuWeather.com meteorologist Alex Sosnowski. For some people, the upcoming weather may seem harsh in retrospect of how warm the past couple of months have been.

"During the middle of this week, more typical chill for January will arrive in the Midwest and is likely to last through much of the month," Sosnowski said. "During the first week of January, high temperatures will average in the teens in Fargo, ND; International Falls, MN; and Des Moines, IA, and in the 20s from Minneapolis to Chicago, Kansas City, Missouri, and Omaha, NE. From Detroit to Indianapolis, Cincinnati, Cleveland and Pittsburgh, highs will be within a few degrees of freezing."

Chicagoans enjoyed a New Year's Eve high of 44, 12 degrees above normal, but Monday's high was expected to reach 39, with temperatures expected to trend lower from there. Tuesday's high of 37 was seen falling to 32 on Wednesday.

Gas at the Chicago Citygate for Tuesday delivery rose 58 cents to $2.27. Other hubs were firm as well.

Gas at the Henry Hub rose 54 cents to $2.08, and deliveries to El Paso Permian vaulted $1.22 to $2.80. Gas at the PG&E Citygate added 23 cents to $2.77.

Next-day peak power prices also provided an economic framework for incremental purchases of gas for power generation. Intercontinental Exchange reported the Tuesday peak power at the Indiana Hub rose $5.08 to $26.08/MWh, and at the ISO New England's Massachusetts Hub next-day peak power added a stout $7.43 to $40.80. Peak power at the PJM West terminal Tuesday rose 49 cents to $30.32/MWh.

Futures traders saw the day's advance continuing.

"We had 74 degrees on Christmas here," said a New York floor trader. "You will now see the patterns changing and toward the latter part of the week we will see high 20s to mid 40s, so we are kind of getting back to what temperatures should be.

"I think you will see the market stabilize a little bit and everybody not thinking this thing is going to crash. I think we will see a higher open" on Tuesday, the trader said.

Weather forecasts have changed somewhat from last week, with the pattern of above normal and well above normal temperatures in the near and intermediate term in the East and Midwest giving way to somewhat more seasonal patterns.

Commodity Weather Group in its Monday morning six- to 10-day outlook showed below normal temperatures south and west of a line from Washington to Nebraska to Mississippi. The East and Midwest are shown as normal to slightly above normal.

"While we are estimating a slight loss compared to Thursday's forecast based on same-day forecast estimates, perhaps the bigger story is the slower return of a stronger warm pattern by the second week of January," CWG President Matt Rogers said. "Instead, the models are favoring the idea that colder variability persists with less warmth coverage.

"A transient cool to cold push is still favored to sweep from West to East during the six-10 day, and while the air mass weakens when it comes eastward, it offers the ‘least-warm’ five-day period we have seen in a while in the East.

"The 11-15 day shows increasing support for high pressure ridging around Alaska, the North Pole, and even toward Greenland, which are bigger colder pattern signals; however, there is also a strong undercutting Pacific flow to somewhat offset this new cold air connection and complicate the forecast considerably. We still believe a warmer East pattern wins out, but it is not nearly as warm as before."

Market technicians see the case beginning to form for a major market low.

"With natural gas challenging $1.995-2.051, the case for bottoming action is starting to gain serious traction," said United ICAP's Brian LaRose last Thursday. "Can the bulls put the final nail in the coffin, so to speak? To confirm a trend reversal is in fact taking hold, bulls need to push natural gas through $2.294-2.304-2.345-2.386. A decisive close above this zone would significantly increase the probability of a major low developing."

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