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Market Sustains Rally as Cold Forecasts Spread

Wednesday forecasts of freezing or subfreezing lows stretching from the Northeast through the Upper Midwest and Plains into the Rockies and Western Canada, accompanied by snow in several areas, extended the cash price rally that had begun last Friday into its third trading day Tuesday.

Flat numbers at Waha and ANR ML7 were left out of increases everywhere else ranging from 2-3 cents to about 40 cents. Northeast locations continued to lead the advance by recording a large majority of the largest double-digit upticks.

The April futures dip of less than a penny a day earlier provided essentially neutral guidance for Tuesday's cash trading, but screen support for the physical market Wednesday will be fairly strong after the prompt-month contract rebounded by 9.3 cents (see related story).

The Midwest climate was something of a tale of two regions, as The Weather Channel (TWC) said temperatures will be five to 20 degrees below average across the northern section but still five to 20 degrees above average over the lower part of the region. A winter storm will increase snowfall from New York and northern Pennsylvania into southern New England, TWC said, and the snow could make it down to the Mason-Dixon Line Thursday before the storm exits.

The South can anticipate a few more days of mild conditions before the cold spell reaches it, while much of the West will be merely chilly compared to the significant cold residing in the Rockies, Upper Plains and Western Canada.

The return visit of winter-like conditions across much of the northern U.S. did nothing to change pipeline restrictions that weren't already in place, such as Algonquin's request for shippers to help pack its system if feasible.

A Midcontinent producer said the early-week price strength in his still-mild area was puzzling at first because his company was finding very little utility or industrial buying. However, he believed storage players were behind the regional bullishness because current cash-futures spreads created good profit opportunities from buying physical gas this month and selling it via financial instruments in April.

The producer said he thought that in addition to the colder weather in the North, the futures run-up last Thursday helped set the cash market tone for this week. Also, he noted that after about a month of stagnation in Midcontinent basis spreads, now they're widening a little and allowing companies to play arbitrage spreads among the pipes. NGPL-TexOK has commanded strong regional premiums for about a week and a half, he said, while CenterPoint has been somewhat erratic; it was one of the premium Midcontinent pipes Monday but relatively weak Tuesday.

He said his company had done a few early April baseload deals at index plus a penny on Panhandle Eastern and at index flat on others. At this point April indexes look as if they will be quite a bit stronger than March's, he added.

Noting that there was a net injection of 11 Bcf into storage during the comparable period last year, IAF Advisors analyst Kyle Cooper said he looks for an 8 Bcf withdrawal to be reported for the week ending March 18. Stephen Smith of Stephen Smith Energy Associates projected a pull of 5 Bcf, down from his original estimate of 9 Bcf.

Citi Futures Perspective's Tim Evans anticipates two single-digit withdrawals followed by a substantially larger one before an addition of 11 Bcf in the first week of April launches the injection season. He predicted draws of 2 Bcf, 4 Bcf and 47 Bcf for the weeks ending March 18, March 25 and April 1, respectively.

The 13 Bcf pull predicted by Hugh Li and Stefan Revielle of Credit Suisse for last week was among the highest by industry analysts.

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