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NatGas Futures Gain Before Forecast Prompts Post-Settle Slide; Cash Firms on Winter Demand

After last week's drubbing, natural gas futures gained modestly on Monday to start the new week, helped by some frigid temperatures in the 11-15 day outlook. The spot market firmed as well, even as prices moderated somewhat in the Northeast, and the NGI National Spot Gas Average added 4 cents to $2.98/MMBtu.

The January contract settled 5.6 cents higher at $2.828 Monday to recover some of the prior week's losses. February settled 5.5 cents higher at $2.847. That said, futures retreated following the close, with January trading back around $2.800 by 3:30 p.m. EDT.

NatGasWeather.com said in a note to clients that an afternoon update in the European weather model Monday showed an important cold pattern late in the 11-15 day period trending warmer.

"All weather models still advertise a rather cold pattern Dec. 23-26, just not as impressive this round with frigid air over Southern Canada not advancing quite as far south," the firm said. Any warm shift in this pattern and "the markets could get annoyed, which could be happening with prices selling off a few cents just prior to and as this data was coming out…

“There's a very sharp temperature gradient between frigid air over Southern Canada and much milder conditions over the middle of the U.S. Dec. 22-26, so any slight shift north of the cold pool and the data will appear much less impressive, while a shift back further south and the pattern will again look rather ominous."

As for the rest of the outlook, "several cold shots are still on track to sweep across the Great Lakes and Northeast this weekend, where highs will only reach the teens to 30s, with strong demand," NatGasWeather said. "A milder break is expected to set up between cold shots this weekend; however, the data showed it to be a bit shorter in duration...to gain a little demand."

After that, the outlook shows another break in the cold the middle of next week, followed by the Dec. 23-26 chillier pattern, the firm said.

Bespoke Weather Services also pointed to the afternoon European guidance to explain the post-settle selling Monday.

On Monday afternoon analysts saw “the back of the strip deteriorate and spreads then begin to compress a bit as European modeling guidance seemed to waver slightly on the long-range cold risk we have been watching so closely," Bespoke said. "We do expect significant model volatility in the coming week; models have struggled to handle Pacific forcing correctly recently, and the market continues to feel relatively burned in the face of cold thus far in December that has been underwhelming compared to the potential pattern.

"As a result, we may continue to see this selling whenever modeling guidance wavers on the intensity or duration of long-range cold, yet we see rather significant cold as still likely just within the base state of the atmosphere and with a number of upstream pattern drivers," Bespoke said. "...We did notice a few further gas-weighted degree days being lost in the medium-range as well, which will not help in a market that has been selling off due to recent loosening."

In the spot market Monday, points gained across Texas, Louisiana and the Southeast, as well as the Midwest, Midcontinent, Rockies and Appalachia. Northeast prices moderated but remained at elevated levels, while out West the SoCal Citygate saga continued.

In the Northeast, AccuWeather was calling for temperatures to warm up slightly in Boston Tuesday; Algonquin Citygate dropped 33 cents to $6.46, holding onto most of the gains recorded late last week when winter weather swept across the East Coast. An operational flow order issued last week was also still in effect Monday on Algonquin Gas Transmission's system. Elsewhere in New England, Iroquois Waddington fell 20 cents to $3.38, while Tennessee Zone 6 200L rose 1 cents to $7.13.

Further south Transco Zone 6 New York gave up 40 cents to fall to $3.77, while Transco Zone 5 fell 26 cents to $3.83. AccuWeather was forecasting highs in the mid- to upper-40s for Tuesday in East Coast cities including Washington, DC, New York and Philadelphia.

Appalachian prices gained across the board, including Dominion South (up 12 cents to $2.30), Columbia Gas (up 5 cents to $2.68) and Tetco M2 30 Receipt (up 13 cents to $2.29).

Genscape Inc. was forecasting demand in the Appalachia region -- including all of New York, Ohio and New Jersey -- to ramp up to 19.07 Bcf by Wednesday, up from 15.73 Bcf Monday and a recent seven-day average of 14.88 Bcf/d.

In the Midwest, Chicago Citygate added 15 cents to $2.78, and Joliet added 13 cents to $2.78. Prices in the Rockies and Midcontinent followed suit, with Northern Natural Demarcation climbing 13 cents to $2.70, and the Cheyenne Hub tacking on 9 cents to $2.43.

Elsewhere, Henry Hub tacked on 5 cents to $2.80, while Katy added 8 cents to $2.77 and Waha climbed 5 cents to $2.55.

Meanwhile, SoCal Citygate -- where utility Southern California Gas (SoCalGas) has been dealing with significant import and storage constraints this month -- jumped $1.64 to $7.03, exceeding the point's $6.38 average price for December bidweek.

SoCalGas was forecasting system demand to go from 2.39 million Dth on Sunday to more than 2.8 million Dth by Tuesday, expected to exceed the utility's total receipts of around 2.64 million Dth/d from Monday to Thursday.

The arrival of winter weather recently has helped to lift overall Lower 48 demand during the current week, according to PointLogic Energy, though the firm expects demand to fall next week amid more moderate temperatures.

Domestic demand is forecast to average 89.7 Bcf/d for the week ended Thursday, 14.4 Bcf/d higher week/week, PointLogic Vice President Jack Weixel said in a note to clients Monday.

"Cold weather in the Northeast and Midcontinent is the main driver behind the change, up 6.0 Bcf/d and 4.5 Bcf/d, respectively, week/week. The Southeast also saw a jump of about 3.1 Bcf/d," Weixel said. For the week ended Dec. 21, "demand forecast models show a retreat in both temperatures and absolute demand levels back down to 80.7 Bcf/d."

By sector "total power burn for the country will average 26.3 Bcf/d for the current week" after reaching "as high as 29.3 Bcf/d on Dec. 8. This level of power burn has not been seen since early October," Weixel said. "Lower prices and higher weather-driven demand (especially in the Southeast) are driving this change. With temperatures coming back to normal, PointLogic expects power demand to fall slightly during the week ending Dec. 21."

The National Oceanic and Atmospheric Administration, through its Climate Prediction Center (CPC), is forecasting a U.S. average 175 population-weighted heating degree days (HDD) for the week ending Saturday. That's 26 fewer than last year and down six from the seasonal norm.

The New England region is expected to be the coldest at 264 HDDs, 26 above normal but down 16 from the same period last year. CPC is calling for 262 HDDs in the East North Central Region for the period, 11 more than normal but down 57 from last year.

The West North Central is expected to average 129 fewer HDDs for the period versus last year, totaling 211 HDDs for the week. That's 66 HDDs below normal, according to CPC.

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