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Overall Rally Goes Against Grain of Weak Influences

The cash market defied light heating load in the East, prior-day futures weakness, the "weekend effect" and bearish storage expectations by staging a rally at most points Thursday.

A few points in the Gulf Coast and Northeast were either flat or still slipping by as much as about a dime. But most of the market realized gains ranging from a couple of pennies to a little more than 45 cents. The West, where the bulk of heating demand currently resides, was a clear leader in the upward price movement.

Due to the transition to a new month during the long holiday weekend, spot gas was traded Thursday for Friday-through-Sunday flows. Friday's deals will cover flows for next Monday and Tuesday.

While other regions have a tough time discerning whether winter has actually arrived near the end of December, residents of the West have no such problem. It's a genuine winter there as another blizzard, similar to the one that paralyzed Denver last week and forced its airport (the fifth-busiest in the nation) to shut down for a couple of days, was engulfing the Rockies Thursday. Denver is expected to see a low of 9 degrees Friday.

The storm is forecast to continue on into eastern climes through the weekend and into early next week, but its chilling effect is not likely to be as severe as in the mountainous West.

The February futures contract rose a little more than a dime in its prompt-month debut. However, that is not expected to avert falling cash numbers Friday.

In a striking contrast of East-vs.-West markets, Southern Natural Gas is implementing an OFO for long imbalances due to moderate weather forecasts in its Southeast service area, while CIG is concerned about frigid weather, underperforming production and potential wellhead freeze-offs hampering its operational capability (see Transportation Notes).

A Houston-based trader attributed Thursday's general rebound to the perception that the cash market had "found a bottom" after extended weakness and traded "in its comfort range." Columbia Gas in Appalachia fell hard near the end of trading for some reason, he said, but most Midcontinent points were rising late.

He said he would expect the Chicago citygate index for January to fall somewhere in the $6.10-15 range.

A Gulf Coast producer trading representative noted that prices headed upward following a bullish crude oil inventory report in which supplies dropped considerably more than expected last week. However, she is still bearish about gas prices in the long run, saying "there is nothing on the horizon" as far as cold weather goes. I'm not sure if we're ever going to have a winter." She noted that the National Weather Service is calling for above-normal temperatures in most areas through March.

The trader noted that even though Thursday's market incorporated two days of weekend flows, it seemed to have little negative effect on prices. However, she expects that a price crash will come Friday. She said her company finished bidweek trading last week, indexing everything as usual.

Referring to Nymex's year-end holiday schedule for 2007, she doesn't think most of the industry will follow the exchange's lead on Christmas Eve trading (a Monday). "I expect almost everybody to trade on the preceding Friday for flows through the day after Christmas" and to take that Monday off, she said. Anyone who does plan to be an active trader on Christmas Eve will find it an extremely thin market, she said.

Bidweek activity had slacked off greatly Thursday. A Northeast utility buyer, harking back to $11-plus futures pricing last January, said it was "looking pretty good" on next month's indexes. His company hasn't been buying any day-to-day gas in recent weeks, he said, but he thought the mild spot gas rally in the Northeast Thursday was because "it's still winter," even if it's kind of mild. His company is buying just a little baseload for January and will augment supplies with daily spot purchases if needed.

Analyst Jim Osten of Global Insight expects a 79 Bcf storage withdrawal to be announced for the week ending Dec. 22. Looking ahead to next week's report, he predicted that a 91 Bcf pull will be recorded for the current week.

Reuters news service said its survey of 22 industry players found an average expectation of a 66 Bcf withdrawal. The estimates ranged from 44 Bcf to 101 Bcf, Reuters said.

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