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Weekly NatGas Prices Surge on Quick-Hitting Cold Forecast; Futures Drop A Dime

Weekly natgas cash prices for weekend through Tuesday delivery got a big tug higher for the week ending Feb.12 as traders made sure the cupboard was full ahead of the Presidents' Day Holiday weekend, which was expected to bring a fierce, but short-lived blast of cold and snow to major energy markets.

The NGI Weekly Spot Gas Average added a hefty 34 cents to $2.31, and although most parts of the country recorded nominal gains of a dime or less, the $1.41 average gain to $3.16 posted by the Northeast lifted the overall average. Of the actively traded points the location showing the week's greatest gain was Algonquin Citygate with a rise of $3.60 to average $6.01 followed closely by Tennessee Zone 6 200 L with a $3.55 advance to $5.90. Northwest Sumas grabbed the dubious distinction of posting the greatest loss with a drop of 21 cents to average $1.75.

Regionally the Rocky Mountains settled in the cellar with a decline of 12 cents to average $1.86 followed closely by California with an 11 cent slide to $2.05.

East Texas managed only a 3-cent advance to $2.04 and both South Texas and the Midcontinent gained 4 cents to $2.05 and $2.04, respectively. South Louisiana on average was higher by 6 cents to $2.09 and the Midwest rose 8 cents to $2.16.

On a somewhat ominous note March futures lost 9.7 cents for the week and lodged firmly under $2 at $1.966. Much of that decline resulted from Thursday's drop following the release of inventory data showing a softer withdrawal from storage for the week ending Feb. 5 than what most traders were expecting. The Energy Information Administration (EIA) reported a withdrawal of only 70 Bcf, about 12 Bcf less than estimates.

Once the storage number hit trading screens March futures fell to a low of $2.002, and by 10:45 a.m. eastern on Thursday the March contract was trading at $2.005, down 4.1 cents from Wednesday's settlement.

Prior to the release of the data, analyst estimates were in the upper-70 Bcf area. ICAP Energy was looking for a pull of 77 Bcf, and a Reuters survey of 23 traders and analysts showed a range of draws from 70 to 105 Bcf with an average 82 Bcf pull expectation. Citi Futures Perspective calculated a 98 Bcf withdrawal.

"Nothing has really changed. It's $2 on the downside and $2.25 on the upside," said a New York floor trader after the report was released. "We were trading about $2.02 before the number came out, so the report pushed the market lower by a couple of pennies."

"The net withdrawal of 70 Bcf was bearish relative to market expectations," said Tim Evans of Citi Futures Perspective. "This was a second consecutive bearish miss, suggesting that the background supply/demand balance has weakened.  There may have also been a greater sensitivity to last week's warm temperatures than forecast.  Either way, it's a bearish result."

Inventories now stand at 2,864 Bcf and are a whopping 573 Bcf greater than last year and 543 Bcf more than the five-year average. In the East Region 21 Bcf was pulled, and the Midwest Region saw inventories fall by 28 Bcf. Stocks in the Mountain Region were down by 8 Bcf, and the Pacific Region was lower by 13 Bcf. The South Central Region shed no Bcf.

In Friday's trading natural gas cash prices for weekend through Tuesday delivery and futures prices seemingly moved in opposite directions, yet upon further review the similarities are closer than they might appear.

Futures lost a few pennies, and the NGI National Spot Gas Average added 9 cents to $2.41. Most physical points, however, lost between 10 cents and 20 cents, but the titanic gains at a few northeast points, close to $3 in some instances, pulled the overall physical market higher. Gains in the Northeast averaged more than $1, as well-below freezing temperatures were expected to grip much of the region through the Presidents' Day Holiday weekend.

Futures limped lower as traders looked beyond what promised to be bitter cold in Midwest and eastern markets over the weekend, and at the close March had dropped 2.8 cents to $1.966 and April had given up 3.1 cents to $2.030.

Quick-hitting weekend cold had buyers in the East on edge and prices vaulted higher. Forecaster Wunderground.com predicted the Friday high in Boston of 23 would slide to 18 Saturday with an overnight low of -6 before making it back to 30 on Monday. New York City's Friday maximum of 28 was seen dropping to 18 on Saturday, but overnight the mercury was expected to plummet to 3 degrees. By Monday temperatures in the Big Apple were expected to make it to 33. Philadelphia's Friday high of 26 was also seen falling to 18 Saturday with an overnight low of 4 degrees, but by Monday temperatures were forecast to climb to 34.

Weekend through Tuesday gas on Tennessee Zone 5 200 L gained a penny to $5.32, and gas on Tenn Zone 6 200L fell 35 cents to $6.37.

Packages on Transco Zone 5 rose 64 cents to $4.38, but gas on Transco Zone 6 non-NY North serving southeastern-most Pennsylvania, Trenton and southern New Jersey soared $2.07 to $6.10. Deliveries to New York City on Transco Zone 6 added a stout $2.72 to $8.14.

"Flow orders went in place on Thursday for Zones 5 and 6," said an eastern pipeline veteran. "It's on the bulletin board and it's a reminder for nobody to overpull and no one to under deliver. When it's this cold system demand is as it should be and everyone's noms should be what they say they will be. Right up to MAOP [maximum allowable operating pressure]."

Marcellus points were mixed. Gas on Dominion South rose 7 cents to $1.42, and deliveries to Tennessee Zn 4 Marcellus fell 15 cents to $1.05. Gas on Transco-Leidy Line lost 17 cents to $1.05.

Major market hubs showed more representative pricing. Gas at the Henry Hub gave up a nickel to $2.07, and deliveries to the Chicago Citygate fell 11 cents to $2.05. Gas at Kern River fell 12 cents to $1.73, and packages at the SoCal Citygate skidded 26 cents to $1.87.

Going into Friday's trading players were still looking for trading opportunities from the short side of the market as a sizable supply surplus expands amid an advanced stage of the heating cycle. "Furthermore, visible balances appear to be suggesting some structural shifts that could upsize the supply surplus to larger levels than generally anticipated with the approach of March when the weather factor diminishes in importance," said Jim Ritterbusch of Ritterbusch and Associates in opening comments Friday.

"Yesterday's much lower than expected 70 Bcf storage withdrawal provided somewhat of a shocker from our perspective. As a matter of fact, our weekly projections have been far off the mark during the past couple of weeks as it appears that electric generation demand has been much weaker than would be implied by HDDs.

"As a result, the storage surplus against five-year averages has ballooned to a whopping 543 Bcf. And, while maintaining this supply excess will be challenged by next week's data, the temperature forecasts across next week and into March would appear to favor a substantial overhang with which to begin the next injection cycle. Storage has now dropped to 2.86 Tcf. We feel that average weekly draws through the remaining eight to nine weeks of the withdrawal cycle could be as low as 65 Bcf, a pace of decline that would imply an end-of-season stock approaching 2.3 Tcf. Should this scenario play out, physical pricing will likely be spending more time south of the $2 mark rather than above the pivotal $2 level."

Gas buyers over the weekend across the PJM footprint seeking to augment supplies for power generation will likely have to be on their toes as wind generation is expected to subside over the weekend.

WSI Corp. in its Friday morning report said, "A quick-moving disturbance and cold front will race across the power pool [Friday] and tonight with a brief round of snow showers/squalls. A gusty north-northwest wind behind this system will usher pure arctic air and the coldest air of the season into the power pool for the weekend. High temps will range in the single digits, teens to mid 20s. Lows will range in the single digits below zero to the mid teens. Arctic high pressure will depart during Monday, allowing a frontal system to move across the power pool and up the East Coast with a round of snow, wintry mix and rain, as well as moderating temperatures. Heavy snow is possible over the Appalachians. Temperatures may rebound in the 30s, 40s to mid 50s by Tuesday.

"A gusty north-northwest wind will cause wind generation to ramp up during the next couple of days. Output may rebound back to 4-5 GW, [and] wind gen will likely subside during Saturday night into early Sunday," WSI predicted.

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