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Cash Rebounds But Mild Weather Lingers

Cash prices managed to rebound 10-60 cents Tuesday after a very weak day of trading on Monday. The increases at most market locations were between 15 and 30 cents with spikes at a few points outside that range, including a more than 60-cent jump at Texas Eastern East Texas and a 50-cent climb at CenterPoint West. But traders had little confidence that prices would rise much further given the weather picture and storage situation.

"I think a lot of people are already in Christmas mode. I'm not seeing a whole lot of activity out there," said a marketer. "It's particularly dead in the term market. This market is weak, and I really don't see much change on the horizon.

"To be honest with you, I think most of the market feels winter is done already. If we eventually get some cold weather, sure, you'll see a reaction to that, but I think overall people are kind of giving up. We've probably got another month of flat to slightly lower prices. But I don't see anything in the forecast that would make this thing run."

The mountains of the Pacific Northwest are getting big snowfalls this week and the coast is getting pounded by hurricane-force winds and heavy rain, but everywhere else conditions are pretty calm and mild. "From the Great Plains to the Eastern Seaboard it won't be stormy enough nor will it be cold enough for any significant snow event," said AccuWeather.com Senior Meteorologist John Kocet. "The position of the jet stream has dictated where arctic air has to stay and where the storm track has to be for the next several days."

The weather picture is particularly bearish, with above-normal temperatures across most of the country and little change expected through most of December. The six- to 10-day forecast from the National Weather Service shows above normal temperatures over the eastern half of the nation, and the eight- to 14-day forecast is no different.

"I think were are looking at a pretty flat market going forward, much flatter that what we've seen in previous winter markets," the marketer said. "I think we will try to get under $7 on the futures market here at some point for the winter. You are already seeing January cheaper than February and March right now. In fact, January is cheaper than most of the summer. We are already seeing it turn around. People are giving up on winter. There's plenty of gas in the ground. We have warm weather right now and warm weather in the forecast and it's already mid December. If we get to mid January and we've seen nothing, this thing will really crater."

He predicted that prices would drop but remain above the $6 mark. "I don't see us getting under $6 or anything but I certainly don't see us running up to $10 either."

The Energy Information Administration made a similar prediction Tuesday in its December Short Term Energy Outlook (see related story). "While a return to normal weather could increase pressure on the Henry Hub spot price, high levels of natural gas in storage and the forecast of slightly warmer-than-normal weather are expected to keep natural gas spot prices below $9 per Mcf on average through the heating season," EIA said. The agency predicts a January monthly average of $8.71/Mcf at the Henry Hub. The Henry Hub is expected to average $7.06/Mcf in 2006 and $7.87/Mcf in 2007.

Henry Hub prices moved up about 15 cents on Tuesday to the mid $6.90s. Texas Gulf Coast locations rose 20-35 cents on average with a few outside that range on the high side. Chicago moved up about 30 cents to near $7, but MichCon gained only about 15 cents to near $7.10.

The Rockies gained 20-30 cents but many points remained below the $5 mark. Questar ended in the low $4.80s. A Rockies trader noted that Clay Basin storage levels are back where they were at the beginning of the month -- 92% full -- after about 2 Bcf of gas was added to the field because of mild weather. The Jackson Prairie storage field also has allowed injections this month. "We need weather but we're just not getting much of anything so far," the trader said. "Storage levels are increasing. At the end of December last year we were at 74% full in Clay Basin but this year we're likely to be in the high 80s because of this weather."

Although this week's gas storage report could show a large withdrawal of more than 140 Bcf -- a Bloomberg survey predicts 145 Bcf -- the weekly change in working gas levels won't match what happened during the same week last year. Inventories fell by 181 Bcf during the same week last year after a cold snap sent demand soaring.

In fact, over the next few weeks the storage surplus compared to levels last year -- currently 232 Bcf, or 7.3% -- should grow substantially. As reported in yesterday's edition of Daily GPI, analysts at Raymond James & Associates predict the surplus will grow 100-200 Bcf before January.

"I think we could see an end to winter that's nearly identical to last year, where warm weather leaves us with surplus gas in storage come March," predicted a Northeast marketer. "It's early, I know, but mild weather predictions are coming true and storage already is very high. Even if we get some normal weather in January, it will not be enough to draw down this surplus because over the next few weeks we're looking at very mild weather."

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