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Return of Cold Weather Heats Up Cash Prices

With severe cold already well established in much of the interior West and Western Canada, and cold fronts having brought winter-like chills back into the Midwest and poised to do the same Thursday for the Northeast and South, the cash market rang up double-digit gains across the board Wednesday. An 11.8-cent futures advance the day before gave added support.

Solid gains across all market areas ranged from about a quarter to nearly 85 cents. Northeast citygates, where lows would be plunging into the 30s Thursday, led the big rebound with most of the largest upticks.

Freezing temperatures have resided in the Rockies for a while now, and the first in a series of Pacific storm systems will move into the Pacific Northwest Thursday with rain, freezing rain and snow, The Weather Channel said. Snow also should accompany a low-pressure area entering the Northeast, and high temperatures there will fall even lower into the 30s and 40s Friday, the forecaster said. Lows were around freezing in the Midwest Wednesday and will fall a few degrees further Thursday; Chicago has a forecast low of 26 degrees.

Things were still pretty mild for most of the South, but it also is due to get a taste of winter. Atlanta's low of 54 Wednesday was predicted to drop to 39 Thursday.

Upper Midwest conditions were already severe enough that Northern Natural Gas said it is continuing to experience demand in the market area "that significantly exceeds scheduled activity." It anticipated that for Wednesday's gas day, deliveries would exceed scheduled receipts by 500,000 dekatherms, "resulting in a significant and unsustainable use of LNG to meet unscheduled deliveries." As a result, starting Thursday Northern will not allow decreased injections or increased withdrawals from storage on the 8 a.m. end-of-gas-day nomination cycle.

Northern's bulletin board helps document the excessive demand. The normal system weighted temperature at the beginning of November is 41 degrees, Northern said. It projected these averages: 28 Wednesday and 25 Thursday before rebounding to 32 Friday and 37 Saturday.

Although CIG's Fort Morgan storage field remains functionally shut in due to a leaking well (see Daily GPI, Oct. 30), a pipeline spokesman said Wednesday that if customer demand warrants it, the facility is able to make limited injections and withdrawals after a few hours of special preparations. In fact, he said, some Fort Morgan withdrawals were made Tuesday.

There was no surprise in Wednesday's cash strength, said a Midcontinent producer. Cold weather is coming back, he said, and incremental utility buying is exceeding what the utilities had planned. Most of the Midwest will be 10-12 degrees below normal for the next few days, he said.

He expects strong prices to stick around until at least Friday, when they might soften due to a warm-up expected to start by the end of the weekend. He said he is aware that there have been a lot of contradictory forecasts, but he is in the camp expecting a colder than normal winter.

One reason for cash strength is that most utilities are reluctant to get going too soon on storage withdrawals, the producer continued. Some are under mandates that certain volumes have to be taken out steadily throughout the withdrawal season, but other utilities are more proactive in that area, he said.

A western marketer said he definitely perceived that the market is getting "lighter on offers, heavier on bids" and is more responsive than before to temperatures. Most traders feel that if they are going to make a supply error, it's better to err on the side of having more than they need, he said, adding that any excess can always be sold back into the market.

Availability of IT services is starting to get tighter for winter, the marketer said. Northbound Kemmerer (WY) Station capacity on Northwest has been constrained on most days recently, he added, and that has driven the Sumas-domestic price spread to more than a dollar now (Sumas higher).

There's demand out there, but it's not heavy yet, the marketer went on. He agreed with the producer that storage users will tend to hold back on withdrawals for a while longer until the winter outlook becomes clearer.

It looks like the market will get at least one more day of rising cash numbers, but then warming trends due by the start of next week probably will cause Friday softness, he said, but added that may depend on what the screen does.

Jim Osten of Global Insight expects a minuscule 1 Bcf storage withdrawal to be reported for the week ending Oct. 27, but then projected a return to net injections with a build of 6 Bcf for the current week. Reuters said its survey of 24 industry players found an average projection of a 4 Bcf pull. Estimates ranged from a 29 Bcf draw to a 35 Bcf build, the news service said.

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