Physical natural gas for Tuesday delivery took a sharp turn higher in Monday's trading as forecast wintry conditions in both the Midwest and East, along with a firm next-day power market, brought buyers into the market. Gains were most pronounced in the East and New England, and no points fell into the red.
The NGI National Spot Gas Average gained a stout 25 cents to $2.24, but the Northeast was up by about 75 cents. Futures bounded higher on a change in the overnight weather models, and at the close March had posted a gain of 7.7 cents to $2.140, and April was higher by 5.2 cents to $2.189. March crude oil fell $1.20 to $29.69/bbl.
Next-day power prices provided a firm footing for incremental purchases of natural gas for power generation. Intercontinental Exchange reported that at the Indiana Hub next-day peak power rose $3.86 to $28.00, and on-peak power at the PJM West terminal gained $3.94 to $35.41/MWh. Power for Tuesday on-peak delivery at the ISO New England's Massachusetts Hub rose a stout $7.98 to $46.48/MWh.
Next-day gas at both eastern and Midwest points surged higher. At the Algonquin Citygate, Tuesday deliveries soared $2.52 to $5.63, and gas on Iroquois, Waddington added 29 cents to $2.60. Gas on Tenn Zone 6 200L gained a healthy $2.68 to $5.60.
Further south, gas on Tetco M-3 Delivery rose 29 cents to $1.85, and packages bound for New York City on Transco Zone 6 gained 75 cents to $2.90.
Temperature forecasts held around normal. Forecaster Wunderground.com predicted Boston's Monday high of 37 degrees would slide to 32 Tuesday and back to 38 by Wednesday, the seasonal norm. New York City's high Monday of 39 was expected to be 36 Tuesday before rebounding to 40 on Wednesday, also the seasonal average.
Chicago's temperatures were forecast to trend lower. Monday's peak of 30 was anticipated to ease to 26 Tuesday before dropping to 18 on Wednesday, 16 degrees below normal.
The relatively mild temperatures in New England and the East were deceptive.
"Winter storm will continue impacting eastern New England through Monday night with a combination of heavy snow and strong winds, resulting in dangerous travel conditions,” said Wunderground.com meteorologists.
“In parts of Southeast Massachusetts, blizzard conditions are possible along with tree damage, some power outages and coastal flooding. As of late Monday morning, winds had gusted up to 57 mph on Nantucket Island and coastal flooding was reported in several locations along the Massachusetts coast,” forecasters said.
"The natural gas market is pushing higher in Monday trade, supported by a temperature forecast that added considerable heating demand into the near term outlook, at least compared with Friday's forecast," said Citi Futures Perspective's Tim Evans. "Even with the shift, we see the near-term storage forecast as moderately bearish, with a net increase in the year-on-five-year storage surplus over the next few reports."
DEVO Capital President Mike DeVooght saw last week's late rally as something of a disappointment. "On a trade basis, we have been looking for a rally as an opportunity to establish short hedges. The recent rally fell short of our target levels of $2.60-2.70 on the spot market."
DeVooght advised trading accounts and end-users to stand aside. Producers, however, are counseled to sell an April-October strip at $2.70. The April-October strip Friday settled at $2.298.
Even with Friday's 9-cent surge, technicians aren't convinced a meaningful advance is underway.
"With the bulls punching through $2.039 Friday, a bounce is likely to start the week," said United ICAP technical analyst Brian LaRose. "But we are only looking for a dead cat bounce at this time, hence the neutral trend. To suggest something much more bullish is brewing a push up and over $2.238 is required. As long as natural gas remains below the $2.238 level, $1.864-1.857 ('a'='c' from $2.495) will be our downside objective."
Longer term weather models over last weekend changed significantly and Monday “is quite a bit different from a week ago when the models collapsed on colder threats and we saw significant warmer gains," said Commodity Weather Group President Matt Rogers in a morning report to clients. "Instead, we are seeing very strong heating demand gains, thanks to an impressive cold push later this week that peaks over the holiday weekend for the Midwest and East.
"Impacts are impressive for especially the Midwest to the Northeast, with potentially the coldest weather seen so far in this otherwise mostly warm-dominated winter story. The models have bounced around on details, and there is still some concern they could overdo cold, based on overestimation of snow cover and given the speed of the event." In the 11- to 15-day period, however, the models trend warmer, he said.