The natural gas futures market seemed to be taking a wait-and-see approach Monday to the cold blast set to hit later this week, and the prompt-month sold off heavily despite opening higher on some cooler changes in the weekend weather data. With forecasts suggesting the mercury is about to drop, the spot market firmed on the strength of gains in the Midwest and Midcontinent; the NGI National Spot Gas Average added 14 cents to $2.79/MMBtu.

After opening up about 3 cents at $3.09 and trading as high as $3.127, the January contract sold off sharply throughout the morning Monday, eventually settling at $2.985, down 7.6 cents from Friday's settle. February settled 7.5 cents lower at $2.988.

"I think it was this feeling that the market doesn't believe the cold weather forecasts," Price Futures Group analyst Phil Flynn told NGI, explaining Monday's sell-off. The market could also be bracing for another bearish storage report this week from the Energy Information Administration, according to Flynn, who said a potential net injection is in play.

"I think the market's trying to balance the fact that production is near a record high, or at a very strong level, and because we haven't been challenged with weather" traders may not believe there's enough cold in the forecast to absorb the elevated production, Flynn said.

Unlike last year, when a significant cold blast may have caused prices to spike, the market isn’t showing much concern about the underlying balance at the moment, he said. Traders "want to see what the cold is going to do on impact since production is so high."

Stephen Smith Energy Associates, in its Weekly Gas Outlook, was calling for a 10 Bcf withdrawal for the week ended Dec. 1, versus a "seasonally normal weekly draw" of 160 Bcf based on 2006-2010 norms. The firm typically issues a revised storage estimate on Tuesdays.

Bespoke Weather Services said it "saw selling as primarily balance-driven, as production is elevated and demand has not been able to keep up as of yet. The result is that the entire natural gas strip sold off in turn" even as forecasts held "fairly firm through the day. "Gas-weighted degree day (GWDD) additions helped the market to initially gap up Sunday evening, but the market seems confident that any looseness will easily be able to sop up the GWDDs that mid-December will throw at it."

As of Monday afternoon, the market was also "beginning to price in some of the bearish expectations late in week two and early in week three that model guidance is now printing out," Bespoke said. This could in turn lead to "long-range GWDD losses" that could provide "enough of a catalyst to pull prices another leg lower should medium-term GWDD additions prove not significant enough."

Meanwhile, as futures dropped, the imminent arrival of chilly temperatures lifted spot prices, especially in the Midcontinent and Midwest, where forecasters were expecting the cold blast to hit first.

"Across the far northern Plains...the forthcoming Arctic cold front is already starting to arrive," PointLogic analyst Alan Lammey said in a note to clients Monday. Minneapolis was expected to see temperatures plunge "well into the 30s before the end of the day. Further west across western Minnesota and the Dakotas, winter storm warnings and blizzard warnings are already in place as the cold front approaches.

"By Tuesday and Wednesday, the Arctic cold front will rapidly slice southeastward and will stretch from South Texas to Ohio to Michigan before rapidly transitioning toward the East Coast," Lammey said. "The cold will then amplify to wrap up the week ahead of increasing evidence among the computer models that the first true Nor'easter of the season could bring a swath of hefty snow from Washington, DC, to New York City to New England."

Chicago Citygate climbed 14 cents to $2.86, and Joliet added 14 cents to $2.84.

Northern Natural Demarcation jumped 21 cents to $2.81, while Panhandle Eastern added 21 cents to $2.56.

Prices in the Rockies were lifted as well. The Cheyenne Hub gained 17 cents to $2.58, and Kern River tacked on 18 cents to $2.69.

Even though MDA Weather Services wasn't expecting temperatures at East Coast cities like Boston, New York and Philadelphia to move into below-normal ranges until Thursday or Friday, prices in the Northeast recovered from broad declines during the previous trading day.

Algonquin Citygate added 11 cents but couldn't climb above the $3 mark, averaging $2.91 on the day. It was a similar story for Transco Zone 6 New York, which added 39 cents to end at $2.86.

Further south, Transco Zone 5 tacked on a few pennies to average $2.90.

Appalachian prices also recovered from losses during the previous trade day, with Tetco M-2 30 Receipt adding 9 cents to $2.25, while Dominion South added 13 cents to $2.34.

Marcellus and Utica shale producers could soon see some additional westbound takeaway capacity hit the market. Rover Pipeline LLC is ready to place three eastern Ohio supply laterals and associated compressor stations into service this month, the operator told FERC Friday.

In a filing posted to the project docket Monday, Rover asked the Federal Energy Regulatory Commission to authorize service on the 3.7-mile, 24-inch diameter Berne Lateral, the 25.6-mile, 42-inch Seneca Lateral and the 32.6-mile, 42-inch Clarington Lateral [CP15-93]. Rover is also seeking authorization to place the Clarington, Seneca and Cadiz compressor stations into service, as well as seven meter stations.

Out West, the ups and downs at SoCal Citygate continued Monday, with the point jumping 75 cents to average $4.99. Southern California Gas (SoCalGas) was forecasting system demand to go from 2,433,000 Dth Sunday to around 2,800,000 Dth/d through Wednesday.

SoCalGas has had to contend with major supply constraints at key import lines, on top of limited operations at its Aliso Canyon storage facility.  The utility plans to begin maintenance Tuesday that would reduce imports from El Paso Natural Gas (EPNG) by about 150 MMcf/d, according to a note from natural gas analytics firm Genscape Inc.

"SoCalGas also updated its maintenance schedule Friday to include over 300 MMcf/d of new capacity reductions affecting storage withdrawal capacity," Genscape said. "These events will have the potential to increase basis price volatility given the existing import and storage constraints, and cooler weather expected this week."

Genscape noted that the planned maintenance includes SoCalGas's Line 2000, affecting interconnects with EPNG at Ehrenburg, AZ, and with North Baja at Blythe, CA. Imports through these interconnects have "flowed an average of 963 MMcf/d in the past two weeks," exceeding "the maintenance capacity limit of 820 MMcf/d. The Ehrenburg interconnect has been one of SoCalGas's most important import points over the last few months because of how many other points have been reduced to zero by unplanned maintenance.”

As for some good news on the supply front, Genscape noted that imports across the Mexico border at Otay Mesa are back online. Otay Mesa was expected to contribute about 98,000 Dth/d to imports this week, according to SoCalGas.

Surrounding points also gained Monday. Malin added 20 cents to $2.76, while SoCal Border Average climbed 20 cents to $2.98. El Paso S. Mainline/N. Baja tacked on 11 cents to $3.08, while Kern Delivery jumped 26 cents to $3.02.