Northeastern physical natural gas prices for gas to be delivered on Wednesday began their return to Earth's orbit from Monday’s all-time highs as the record cold temperatures populating much of the country Tuesday were expected to subside.

Losses were greatest around the metropolitan areas of Boston, New York and Philadelphia, with quotes dropping as much as $40 or more, but notable exceptions were points posting gains such as the Marcellus Shale and Gulf Coast. At the close of futures trading February had eased 0.7 cent to $4.299 and March was down 1.7 cents to $4.267. February crude oil added 24 cents to $93.67/bbl.

One day after recording all-time record highs (see Daily GPI, Jan. 7a), points serving New York City -- while not back to pre-Polar Vortex levels -- were on the retreat Tuesday. Transco Zone 5 retreated $46.88 to average $25.55/MMBtu, while Transco Zone 6 non-NY and Transco Zone 6 NY plummeted $44.66 and 27.93, respectively, to average $26.00/MMBtu and $28.66/MMBtu.

The East was not out of the woods yet, but forecasters expect temperatures to slowly rise. "There is some good news for folks struggling with the cold," said Alex Sosnowski, meteorologist. "Temperatures will slowly trend upward later this week and could touch 50 degrees in some locations this weekend." forecast that the high in Boston Tuesday of 15 would rise to 25 Wednesday and reach an almost normal 30 degrees by Thursday. The normal high in Boston at this time of year is 36.

Quotes at the Algonquin Citygates fell $9.00 to $25.14 after trading as high as $27. Upstream at Iroquois Waddington gas came in at $20.50, $17.83 lower, and on Tennessee Zone 6 200L gas changed hands at $24.78, down $9.81.

While some of Monday's price spike could be attributed to end-users and utilities trying to avoid steep overdraw penalties during Tuesday's subfreezing temperatures (see Daily GPI, Jan 7b), a sizeable bump in gas demand nationally also played an important role.

Gas consumption for the first seven days of 2014 is up significantly versus the last seven days of 2013 in several key consuming regions of the U.S. According to data from Genscape, demand in the Midwest averaged 16.6 Bcf/d over the first seven days of 2014, up 25% versus the 13.3 Bcf/d consumed during the prior seven days. That seven day period-over-period increase was also more than 20% in Appalachia (17.6 Bcf/d vs. 14.5 Bcf/d) and SE MidAtlantic (17.4 Bcf/d vs. 13.8 Bcf/d) regions.

Consumption in the six New England states for the first seven days of 2014 was 3.5 Bcf/d, up from 3.1 Bcf/d over the last seven days of 2013. This relatively low 13% period-over-period increase is just another data point that underscores the lack of pipeline capacity and storage facilities in New England to serve peak demand days in that area.

Gas headed for market points in and around New York, Philadelphia and Washington, DC, tumbled as forecasts called for a warming trend to slowly take hold. anticipated that the high Tuesday in New York City of 12 would make it to 25 Wednesday before advancing to 34 on Thursday. The seasonal high in New York is 38. Washington, DC's Tuesday high of 18 was expected to reach 32 on Wednesday before slipping to 30 on Thursday. The normal high for Washington, DC, at this time of year is 43.

The National Weather Service in New York City reported that "an Arctic air mass will remain over the region through Wednesday. High pressure over the area moves offshore on Thursday...and then a series of frontal systems will impact the area for the end of the week into the start of the new week. Maximum temperatures will warm into the upper teens north of New York the lower 20s along the coast. Wind chills will improve through the day but likely top out in the 10-15 [Fahrenheit] above zero range area wide. Clouds decrease Wednesday night once again and winds will be lighter...but the atmosphere will continue to warm aloft."

While NYC and New England points dropped Tuesday, Marcellus Shale points managed gains. Gas on Tennessee Zone 4 Marcellus rose $1.38 to $4.12, and gas on Transco-Leidy Line was quoted at $4.22, up $1.45. Elsewhere, gas on Dominion was seen at $4.33, up 8 cents.

Gulf points were mostly higher. Wednesday gas on ANR SE rose 8 cents to $4.48, and deliveries to Columbia Gulf Mainline added 6 cents to $4.49. Deliveries to the Henry Hub rose by 4 cents to $4.54, and gas on Tennessee 500 L gained almost a dime to $4.57.

Although futures price movements the last two days have been minimal, Tom Saal, vice president at INTL FC Stone in Miami, says the "firm" cash market and resulting backwardation has set a firm tone to the market. "The arctic cold weather across most of the U.S. shows a firmness in physical cash market prices. [Prices on Transco in New York traded as high as $95 Monday]. Be aware of seasonal backwardation, that is where cash prices trade over spot futures prices," he said in a Tuesday morning note to clients.

"Backwardation normally occurs during the withdrawal cycle, and the greater the backwardation the more intense the withdrawal.  This is 'normal backwardation' and is usually a bullish price signal."

In his work with Market Profile Saal correctly predicted that in Tuesday's trading the market would test Monday's value area at $4.321-4.285. He said it should test a second value area at $4.468-4.434. "Maybe" the market will test a third value area at $4.547-4.521.

Some are more bullish than others. "While conceding that this current cold spell will be translating to another huge storage withdrawal in next week's EIA report of probably more than 250 Bcf, we feel that the milder forecasts will win out as this week proceeds," said Jim Ritterbusch of Ritterbusch and Associates in closing comments to clients Monday. "We still see a zone of staunch resistance in nearby futures within the $4.35-4.45 zone, and we have suggested establishment of bear spreads such as long December 2014-short June 2014 as [the] item of choice in adopting a cautious bearish stance."

He added that in the near term "we look for Friday's $4.20 lows to be tested once temperature moderation drives spot prices back down during the second half of this week. We are still neutral outright but will review this stance in the light of Thursday's EIA report and the market's response thereto. We look for the report to show some significant downsizing from a year ago."

Longer term, weather forecasts were slightly cooler overnight. Tuesday's "forecast is a bit cooler in the Northeast while warmer over most of the central U.S., especially late," said WSI Corp. in its Tuesday morning 11- to 15-day outlook. "Forecast confidence has ticked up a notch today from yesterday as the models have come into better agreement over the past 24 hours.

"The GFS [Global Forecast System] is still the deepest with eastern U.S. troughing in the 11-15 day period, but the latest runs have been trending toward the [other models] and the idea of a faster ejection of the trough late in the period."