Physical natural gas for delivery Thursday gained 12 cents on average Wednesday as traders factored in massive cold front working its way from the Rocky Mountains to the Midwest and points south. At the close, January futures had eased 1.6 cents to $3.960 and February also had shed 1.6 cents to $3.958. January crude oil gained $1.16 to $97.20/bbl.

Northern tier locations posted the greatest gains on the day, but Rockies and the Midwest were not far behind. A handful of Northeast locations found themselves in the loss column, but many points advanced by double-digits.

The wintry weather was forecast to hit Chicago Thursday, but in the meantime it pushed a number of Rockies points to a hefty and rare premium over the Chicago Citygates.

"CIG, Northwest, San Juan, Cheyenne Hub were all between $4.15 to $4.25," said a Denver-based marketer. Thursday gas at the Chicago Citygates was quoted at $4.12, up a dime.

"We have been trying to go short at these levels, but there have been notices of freeze-offs and being ready for the freeze-offs in the next four days so we are hesitant to go too short,” said the Colorado marketer. “That's why you've got utilities like Excel exercising call options and calling on everyone buying gas” (see related story).

The cold weather led to market distortions and trading opportunities. "Having CIG 30 cents over Panhandle, which is a delivery point off CIG, is a sign that it's really cold here, but not nearly as cold in the Midwest.

"What we were surprised to see is the balance of the month's [Rockies] at $4.06, so they are anticipating pretty strong demand for the rest of the month. What that tells us is that it [weather] is significant in the short term, but it will come down in the long term.

"Let's say $4.04 balance of the month CIG and next month basis was trading at 13 cents [under Nymex] Tuesday so that puts you at $3.85. You can just see that curve coming down. It tells us it's a short-term spike on heavy demand by utilities. But that $4.00 number for the rest of the month being higher than the month after says continued high demand for December dropping off in January.”

The marketer was surprised by that. “We think two things are going to happen. Either that January number is going up or the balance-of-the-month number is going way down. It's crazy. Why would balance of the month in December trade 20 cents higher than January? Something has to happen.”

Quotes throughout the Rockies surged on the day, with gas for Thursday delivery on Northwest Pipeline south of Green River quoted at $4.07, up 19 cents, while deliveries on CIG up 24 cents to $4.19. At the Cheyenne Hub, gas was seen at $4.21, up 24 cents, and at Opal gas changed hands at $4.18, up 20 cents.

Gas delivered in the Midwest rose as well. Gas on Northern Natural Ventura added 33 cents to $4.33, and gas at Demarcation was quoted at $4.31, up 34 cents. Alliance packages Thursday came in at $4.16, up 12 cents.

Major markets like Chicago are clearly in the crosshairs of the advancing cold. Tom Skilling, meteorologist at the Chicago Weather Center said Wednesday's unseasonably warm 56 degrees was "a temp out of place in early December when normal highs hit the 30s. The unseasonably mild readings are to hold just beyond Wednesday evening. That's when an Arctic cold front crashes Chicago's warm weather party and temps commence a dive leading us into an air mass likely to register the season's coldest temps to date.

"Though readings by daybreak Thursday will only have fallen into the upper 20s and low 30s in most sections of the Chicago area, they represent a huge retreat from the mild readings to which area residents have awakened Wednesday. It's a change which is unlikely to go unnoticed,” he said.

“Temperatures in subsequent days will continue on a slow but steady downward trajectory so that by Saturday morning, when single digit and low or mid teens are likely to occur, readings will have come down 47 degrees off Wednesday afternoon's 56."

At eastern points, next-day prices fell as much warmer than normal temperatures were forecast through the end of the week. predicted the high in New York City Wednesday of 52 would hit 60 on Thursday before slipping to 58 Friday. The seasonal high this time of year is 47. Washington DC's Wednesday high to 56 expected to surge to a balmy 67 Thursday before easing off to 60 on Friday. The normal high is 50 in early December.

Gas for delivery Thursday at the Algonquin Citygates dropped 63 cents to $4.13 and deliveries to Iroquois Waddington eased a dime to $4.26. Gas on Tennessee Zone 6 200 L plummeted 48 cents to $4.26.

Dominion gas for Thursday was seen at $3.32, unchanged, and on Transco Leidy, next-day packages changed hands at $3.20, down a nickel. Gas at Tetco M-3 came in at $3.64, down a penny, while gas bound for New York City on Transco Zone 6 rose 3 cents to $3.85.

Most of the futures’ ability to hold near $4.00 has been predicated on expectations of a robust withdrawal in Thursday morning's Energy Information Administration's weekly storage report. Surging demand over the Thanksgiving week have pushed estimates for the week ended Nov. 29 deep into draws of triple digits.

Last year only 62 Bcf were withdrawn and the five-year average stands at 41 Bcf. Houston-based IAF Advisors calculates a 154 Bcf withdrawal as does industry consultant Bentek Energy, which noted that a pull of that magnitude would be the largest November withdrawal since at least 1994 when it began reporting inventory changes. A Reuters survey of 24 industry analysts showed an average 138 Bcf decline with a range of 110 Bcf to 154 Bcf.

Longer-term weather forecasts show no letup in the invasion of cold air into the Midcontinent and beyond. Commodity Weather Group in its morning six- to 10-day outlook showed below-normal temperatures engulfing the entire country with the exception of the Southeast. "The peak days of the coldest weather of this incoming air mass look to be next Tuesday-Wednesday for the Midwest with temperatures edging colder today for that event," said President Matt Rogers.

"Lows in Chicago are expected to be around 4-5 F, with Minneapolis dipping to almost 10 F below zero. Even Cincinnati could see single-digit low temperatures by next Wednesday. The cold is also a bit stronger in Texas on the latest forecast thinking.

“The East Coast is split with a warmer start and colder finish to next week. While the guidance agrees on moderating the pattern in the 11-15 day, they continue to diverge on details. This creates significant challenges on day-to-day detailing. We continue to cautiously adjust temperatures so that the period averages are closer to normal in more areas of the U.S., but Canada looks to stay colder…”

Analysts noted that the market has reached a six-month high, and according to Dominick Chirichella, senior fellow at the Energy Management Institute in New York, the advance "is strictly a result of the market shifting out of the inventory injection season and into the winter withdrawal season. This week the industry is expecting a large net withdrawal due to the cold temperatures last week over major parts of the U.S."

Chirichella noted that the market is entering the heart of the winter heating season with a near-record high level of gas in inventory and little in the way of nuclear issues. "Natgas prices are likely to remain firm," he said.