Physical natural gas prices for weekend and Monday delivery on average vaulted another 62 cents in Friday's trading. Gains were made at all but a couple of Marcellus points and were deep into double digits.
Continued cold in the central U.S. prompted Rockies prices gains well above $1, and California locations saw some pricing points traditionally servicing SoCal markets end up being priced to flow to weather-ravaged more easterly points. At the close of futures trading, January had eased 1.8 cents to $4.114, but not before establishing a new high at $4.199. February had eased 0.4 cent to $4.110. January crude oil added 27 cents to $97.65/bbl.
Prices at Rocky Mountain points led the charge higher as forecasters indicated temperatures would remain 20 degrees below normal in the central U.S. Forecaster Wunderground.com predicted Friday's high in Denver of 10 would reach all of 15 Saturday before rising to 27 Monday. The seasonal high in Denver is 44. Oklahoma City's Friday high of 24 was expected to hold Saturday before climbing to 28 Monday. The normal early December high in Oklahoma City is 53. Dallas' 29 degree high on Friday was forecast to drop to 27 Saturday and the rise to 37 on Monday. The normal high in Dallas is 57.
Forecasters didn't see the reign of cold temperatures breaking until late in the week (see related story). The National Weather Service in Boulder, CO, said "By Monday...only slight moderation is expected as Arctic air mass may begin to loosen its grip on the area. Tuesday should finally feature the warmer...although still well below normal...temperatures.
"There are some indications that a backdoor cold front could clip the plains late Tuesday into Wednesday, slowing the warming trend. However...by Thursday, most medium-range models are in agreement of near- to above-normal temperatures returning at that time. The only exception to the warmer weather could very well be the High Mountain valleys where clearing skies and fresh snow cover will likely allow strong inversions to redevelop...so lowered maximum and min temperatures there."
Pipelines in the path of the cold were feeling the "heat." El Paso Natural Gas Co. LLC (EPNG) on Friday said there was a "strained operating condition" on its system with an imbalance tolerance of 10%. An "immediate response" may be required of its shippers because of the storm, it said in a notice announcing an operational flow order.
A Pacific Gas and Electric Co. (PG&E) spokesperson confirmed that the San Francisco-based utility called a number of local curtailments on its transmission pipeline system in response to lower-than-normal temperatures that hit Thursday and Friday, when PG&E’s local distribution system experienced an all-time record setting sendout of 4.5 Bcf, nearly 5% greater than the old record.
Natural Gas Pipeline Co., a primary delivery pipe to Chicago, said Friday that until further notice it was at capacity for gas storage withdrawals, and it said withdrawals above withdrawal quantity for delivered firm storage service (DSS) and nominated firm storage service (NSS) would not be scheduled.
Gas on CIG for weekend and Monday delivery jumped $1.68 to $6.17 and gas at the Cheyenne Hub vaulted $1.65 to $6.14. Deliveries to Northwest Pipeline Wyoming added $1.80 to $6.31 and at Opal gas changed hands at $5.98, up $1.53.
Production shortfalls in the Rockies helped to reprice gas normally bound for SoCal markets. "Freeze-offs are taking place as the Rockies and Central U.S. experience colder than normal weather," said Genscape analysts. "Midcontinent production dropped by 1 Bcf/d in the past three days."
Prices at locations normally providing gas for the Southern California market approached those of the temporarily higher Rocky Mountain points. SoCal Border and El Paso prices surged past SoCal Citygates. Quotes at the PG&E Citygates rose 79 cents to $5.19, and SoCal Citygate gas only rose 30 cents to $4.67. SoCal Border on the other hand jumped 88 cents to $5.30 and gas on El Paso S Mainline rose $1.44 to $6.05.
Cold and freeze-offs notwithstanding, futures traders see the risk-reward at this point favoring sales. "I'm a cautious seller," said Brian LaRose, technical analyst with United ICAP. "You don't get a much better [sell] opportunity than this. You are up against the prior highs with the opportunity for a seasonal cycle decline. You buy put options or put spreads and stop yourself out if it breaks above the prior highs. From a risk reward standpoint this is the best it gets."
LaRose did offer the caveat that the bears did have a lot of work to do. At present his short term technical indicators showed no signs of a market top. "We have by no means come close to breaking below any key support levels. We would have to get back below the $3.95 area to signal some sort of top may be in place. There is the potential to move to $4.70 or $5.15 if the bulls can get their act together and get through the $4.16 to $4.25 area. If they cannot, I think the seasonal top is in place."
On a more fundamental note, analysts see Thursday's huge expansion of the storage deficits continuing. "[Thursday's] huge supply draw forced storage to the lowest level in five years on a per date basis while stretching the supply deficit against last year to 200 Bcf while flipping the difference against five-year averages to a shortfall of around 100 Bcf. This dynamic of deficit expansion appears alive and well through the next two EIA [Energy Information Administration] releases since a decrease of as much as 100 Bcf could be seen next Thursday with the year-over-year shortfall stretching by a further 85-90 Bcf," said Jim Ritterbusch of Ritterbusch and Associates.
"Looking beyond next week, the EIA report to be issued on Dec. 19th could post a draw in excess of 200 Bcf in view of next week's extreme cold across a broad portion of the country. We will also note that storage draws could be increased by supply-side factors as well freeze-offs in southern states such as Texas could be downsizing U.S. production. All in all, this market will have difficulty reversing dramatically ahead of a couple of storage releases that will be further expanding the supply deficit."
Addison Armstrong of Tradition Energy sees the gate wide open for the bulls, "who mounted a 4.3% gain after [Thursday's] weekly inventory report revealed the largest November storage draw on record. Continued price strength is supported by temperature forecasts that show a rapid retreat in the warmth currently dominating the East, with the coldest conditions expected in the six-10 day period. The 11-15 day forecast, however, does show widespread normal or warmer-than-normal temperatures across returning to most of the country outside of the Northern Plains, Upper Midwest and New England."
Tom Saal of INTL FC Stone in Miami in his work with Market Profile scored twice in Friday's trading. He was looking for January futures to test Thursday's value area at $4.125 to $4.037, and he was also looking for the market to reach the 150% weekly breakout target at $4.178.