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Overall Cash Firmness May Be Last for Some Time

Prices continued to rise at a large majority of points Thursday, bolstered by severely cold weather throughout most of North America. There were few cities in Canada and the Lower 48 states that weren't anticipating low temperatures around freezing or less Friday.

It may be the last hurrah for a while for cash market firmness, though. After arresting a four-day string of losses with a small 4.2-cent rally Wednesday, January futures returned to their losing ways Thursday by dropping a little more than a nickel following a mostly bearish storage report. And by Monday's end of the three-day flows that Friday's trading will cover, nearly all of the U.S. will have entered a period of above-normal temperatures that is likely to extend through much of the rest of December.

Most of Thursday's gains were in double digits as they ranged from about a nickel to nearly 80 cents. Flat to as much as 15 cents lower numbers were clustered mostly in the Rockies and Midcontinent.

Although the Northeast as a region tended to garner most of the largest gains, the Florida market led the general price ascent as Florida Gas Transmission issued an Overage Alert Day due to freezing weather being forecast in northern Florida (see Transportation Notes). Florida citygate quotes averaging about $8.80 represented the biggest single-point increase, while Florida Gas Zone 3 was up more than 55 cents.

The Energy Information Administration met prior expectations fairly well with an estimate of an 11 Bcf storage withdrawal for the week ending Dec. 1. However, that was far short of both the comparable five-year average pull of 63 Bcf and the year-ago withdrawal of 58 Bcf. Thus, although the screen initially spent a while in positive territory following the report, bearish sentiment later asserted itself in the Nymex trading pit.

The passage of an arctic front left plenty of snow and frigid temperatures in the Midwest, and single-digit lows were expected to dominate in the region again Thursday night. The Northeast could expect bitingly cold winds and lake-effect snow through Friday. And southern lows in the 20s were due Friday morning as far south as Gulf Coast cities such as New Orleans and Mobile, AL, with the possibility of date-specific records being set, according to The Weather Channel. The West currently is relatively moderate in comparison with the rest of the U.S., but it still had a significant amount of heating load on tap.

Sounds like a pretty bullish weather scenario, right? But it won't last long. Warming trends will be nearly universal over the weekend, and above-normal temperatures will permeate the coming week virtually everywhere except in parts of the desert Southwest, where normal conditions are expected.

The cash market should expect to start seeing softer prices again Friday, especially since the storage withdrawal volume was so weak and the cold that stoked rising prices Wednesday and Thursday is about to disappear, a western marketer commented. He noted that a lot of western traders were watching the Sumas-Malin spread, which had Sumas at a premium of nearly half a dollar at times recently but tightened greatly to about a dime Thursday. He thought that was a signal of growing market efficiency, and also weak market-area demand. Until Thursday Sumas had been trading close to parity with the PG&E citygate, which tended to discourage attempts to transport between the two points, the marketer said.

A Northeast utility buyer said area temperatures would remain below normal Thursday and Friday, but would moderate over the weekend. He termed it "interesting" that the East region actually had an injection in the storage report and the Producing region was unchanged. The West did all the withdrawing last week, he exclaimed. Despite recent price firmness, he considers the market very bearish, saying, "We and everybody else seem to be doing fine with storage."

It's been a fairly light-demand winter so far, the buyer continued, and demand looks to be even lighter for the next couple of weeks. He said his company is buying very little spot gas because December baseload is covering almost all of its needs. He couldn't see anything but a soft cash market for the intermediate future, saying it's going to take harshly cold weather in a lot of places for more than two to three days at a time to get any substantive rally going again.

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