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New England Maintains Recent Cash Strength; Futures Post Fourth Straight Gain

Prices for natural gas to be delivered Friday were mostly quiet outside of the East, where multi-dollar drops in some locations were met by muti-dollar gains at some New England spots. A majority of points around the country managed to tack on a couple of pennies.

The Energy Information Administration reported that storage inventories had declined 81 Bcf, exactly what traders were expecting, and there was minimal market response at the time the figures were released. At the close, however, January had added 7.2 cents to $4.409 and February was higher by 7.0 cents to $4.401. January crude oil gained 6 cents to $97.50/bbl.

"Natural gas prices in the short term tend to be highly correlated with storage levels, and that may be setting up prices to remain strong over the next few months," said Pat Rau, NGI director of strategy and research. "NGI calculates that since April 2011, spot market prices at the Henry Hub have shown an extremely high 86.3% R-Square statistic to "excess" gas in storage, which we define as current gas in storage less the average storage level for the comparable week over the previous five years. For the week ended Dec. 6, this excess gas in storage was a negative 130 Bcf, the lowest figure in more than two-and-a-half years.

"That -130 Bcf figure is likely to turn even more negative in the weeks to come, given the bitter cold temperatures and well freeze-offs the U.S. already experienced so far in December," he added. "The next several weeks may very well be critical in setting the table for gas prices in 2014, since on average, gas usage in the U.S. tends to peak in early- to mid-January. Having excess gas in storage heading into the second half of winter typically has not been a recipe for sustained higher prices in the short-term, everything else being equal."

Supportive weather was expected in the Midwest for Friday, and prices rose across the Midwest and into the Great Lakes. In spite of warmer temperatures Friday in Chicago, conditions were still below normal with snow expected. Tom Skilling, a meteorologist at the Chicago Weather Center, forecast that Thursday's brutal high of just 15 would rise to 31 Friday and 33 Saturday, below the city's normal high of 36.

Skilling characterized Friday as "not as cold. Temperatures, though, below normal for the ninth consecutive day, reach their highest levels in eight days. Extensive daytime cloudiness allows some filtered sun before thickening. Some flurries possible. Light easterly winds. Steadier flurries or light snow begin toward evening. Snowfall becomes steadier and begins accumulating overnight."

The National Weather Service in suburban Chicago said it was concentrating on the strong potential for "accumulating snow across portions of the area late Friday through Saturday as a complex system impacts the area."

Industry consultant Genscape sees Midwest demand easing, then rising. "A brief respite from the cold has caused Midwest demand to slide in recent days, but demand is likely to jump back up starting tomorrow," Genscape said in a Thursday morning report. "Total Midwest nominated demand for today is at 15.8 Bcf/d, roughly 1.5 Bcf/d less than Wednesday, though in-line with the prior seven-day average. Demand is likely to ramp back up and even surpass the last week's levels as regional weather forecasts anticipate the arrival of the next Arctic cold front this evening. Forecasts suggest this oncoming system will feature colder temperatures and more wind and snow than last week's storm."

Nominations for Friday may have eased, but buyers in the Midwest lining up to secure Friday volumes pushed prices higher. Quotes on Alliance for Friday delivery rose 11 cents to $4.64 and gas at the Chicago citygates gained 7 cents to $4.67. On Consumers Friday gas came in at $4.62, up 15 cents and on Michcon gas changed hands at $4.56, up 15 cents as well. Deliveries at Northern Natural Ventura added 6 cents to $4.64.

At eastern points outside of New England, prices slumped as temperatures were expected to rise Friday before easing Saturday. Prices at New York and Philadelphia delivery points, which saw gains of $8 and $5, respectively Wednesday, were quickly reversed. Wunderground.com forecast that the high in New York City Thursday of 24 was forecast to rise to 33 Friday before slipping to 27 Saturday. The normal high in New York City for mid-December, however, is a much warmer 44. Philadelphia's Thursday high of 30 was anticipated to reach 33 Friday before backing off to 29 Saturday. The seasonal norm for Philadelphia is 44 also.

Gas was quoted at $6.62, down $9.92 on Transco Zone 6 into New York, and deliveries on Tetco M-3 were seen at $6.10, down $4.97. Friday packages on Transco Leidy rose 10 cents to $3.13, and on Dominion Friday volumes eased a dime to $3.63.

Mid-Atlantic next-day power prices also offered little incentive to power generators to buy gas. IntercontinentalExchange reported that next-day peak power at the PJM West interconnect fell $14.60 to $61.17/MWh.

In contrast, next-day peak power at New England points rose. IntercontinentalExchange said next-day peak power at the New England ISO's Massachusetts Hub rose $22.04 to $204.22/MWh.

Gas at the Algonquin citygates was quoted at $26.50, up $6.10 and gas on Tennessee Zone 6 200 L jumped $5.31 to $26.22. Upstream at Iroquois Waddington gas for Friday delivery was seen at $14.46, down 48 cents.

The Thursday release of inventory data at first drew an uncharacteristic ho-hum response. "We had heard 81 Bcf before the number came out, and it didn't make either a new high or low on the day afterwards," said a New York floor trader. "We've got 94,000 contracts traded already just in the January, and it looks like the next target is $4.45." Total volume in the January contract finished at just over a hefty 250,000 contracts, according to CME figures.

Going into the report, traders were not convinced the EIA data would catch anyone by surprise. The Energy Metro Desk survey came in at 84 Bcf, and John Sodergreen, the editor, was circumspect about whether the report might offer up any surprises. "The range between the three categories we track was only 1.3 Bcf (if the range between the three categories we track is over 3 Bcf, a surprise of +/-15 Bcf out of EIA is generally indicated), which came as a surprise to us. When we see general survey ranges of 30 Bcf or so, we typically see some Thursday morning fireworks. Maybe not this time."

With the 81 Bcf pull, inventories now stand at 3,533 Bcf and are 273 Bcf less than last year and 109 Bcf below the five-year average. In the East Region 46 Bcf was withdrawn and in the West Region 26 Bcf were pulled. Inventories in the Producing Region decreased by 9 Bcf.

Longer term, forecasters are looking for a cold Christmas. In its morning six- to 10-day outlook, Commodity Weather Group said, "The big picture forecast themes are fairly similar today with this week's big cold outbreak gradually fading, next week's interim break offering some warmer weather opportunities, and then another round of potentially major Arctic air arriving late next week, but mostly impacting the week of Christmas,"

It added that there were some uncertainties in the forecast as "the American models continue to offer some complications by sending a transient cold push across the Midwest and East next week to delay more significant warming (colder six-10 day than other models). But like last week, there is more concern that warming ahead of the bigger Arctic cold front could outperform expectations. Any warming would again be transient with the next round of impressive cold potential arriving late in the six-10 day and dominating the 11-15 day range."

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