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Prices Realize Improbable Gains at Virtually All Points

Although continuing moderate weather almost everywhere outside the mountain areas of the West and bearish expectations of another subpar storage pull made it seem unlikely, the cash market achieved gains Wednesday at all but two points. One source could only speculate that there must have been some storage-futures spread purchases in play because he saw little serious heating load for Thursday except in parts of the West, Upper Plains and northern New England.

Frigid conditions in the Rockies caused that market to experience the largest increases, which overall ranged from about a nickel to half a dollar.

"I'm just watching these prices flounder," said a Gulf Coast trader, explaining that although prices rose Wednesday, they were considerably below first-of-month indexes. For example, she noted, Henry Hub spot quotes in the mid $5.40s were nearly 40 cents below the $5.84 index.

She said she never would have expected a Gulf Coast rally this week following Tuesday's softness at most points. "But I'd bet that cash comes back off Thursday morning," she added, citing both the 13.6-cent loss Wednesday by February natural gas futures amid major weakness in Nymex's petroleum complex (crude oil plunged $2.73/bbl) and warming trends through the next couple of days.

"Why aren't [gas] prices more like $4?" the trader asked before answering herself with "I have no answers." She reported getting no calls from power generators seeking supply. However, she added, her company was "not having any problems finding a market" for its gas.

A Calgary-based producer said he didn't "see any reason" for Wednesday's bullishness except that maybe because the cash market has gotten beaten up so badly lately, there's some feeling of a floor setting in. He also agreed that with spot prices trading so far below index this early in the month (the Chicago citygate that he trades was more than half a dollar below NGI's $6.38 index), an attempt to recover lost ground may be propping up the daily market.

And don't forget that the cold areas of the West are generating significant heating load, even if the rest of the U.S. is above normal, the producer continued. Currently Alberta is also above normal, he said, but it will be getting back to below normal by the weekend. However, if it only stays cold a few days, he expected little if any price-rallying impact.

He said it's "been hectic so far" this week with staffers trying to catch up on things because so many people were on holiday vacations last week. His company had only two or three people on trading duty between Christmas and New Year's, he said.

A Southern utility buyer also had no reason to expect higher prices, saying storage levels are still very high. "We're in pretty good shape, probably, compared to our peer group" when it comes to making measured withdrawals, he said. The utility bought only a small amount of January baseload due to having December-January term gas under contract, he said. That gives it a choice this month between taking optional supplies under another contract, "which will cost us, of course," or withdrawing more storage. Tuesday was probably the coldest of the next five days, he said, with temperatures getting milder going forward.

Oklahoma-based SandRidge Energy announced two temporary shut-ins of production that it said were beyond its control (see related story). SandRidge estimated the total impact at about 1 Bcfe, consisting of 21 MMcf/d of natural gas equivalent for roughly 21 days and 18 MMcf/d of natural gas equivalent for roughly 31 days. The first shut-in was caused by a rupture last week in the light crude High Island Pipeline System (see Daily GPI, Dec. 28, 2006). The second is set for mid-January to mid-February due to maintenance on a third-party line in the Eagle Bay Field in Texas' Galveston Bay.

Analyst Ron Denhardt of Strategic Energy & Economic Research expects a storage withdrawal of 47 Bcf to be reported for the week ending Dec. 29. As it did a week earlier, the Energy Information Administration will delay its report until Friday because of the holiday weekend.

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