Daily GPI / Markets / NGI All News Access / NGI Data

East, Northeast Lead Gains Ahead of Massive Storm; $6 Futures In Play?

Physical gas prices for Wednesday delivery vaulted higher in Tuesday's trading as forecasts called for brutal cold, snow and wind to return for a broad section of the country stretching from the Rocky Mountains to New England. The March natural gas futures contract followed suit, soaring back above $5 and closing at $5.375, up 47 cents from Monday’s finish.

All points registered gains, with the constrained New England points leading the pack higher, but hefty gains were reported in the Midwest, Gulf and Midcontinent as well. Futures traders were also eyeing the forecast storms but were keeping a close eye on what season-ending inventories might look like. The April contract was up 15.8 cents to $4.665. March crude oil rose 76 cents to $97.19/bbl.

AccuWeather.com reported that "a major winter storm with heavy snow, ice and a wintry mix will reach from the central Plains to the Midwest and Northeast spanning Tuesday and Wednesday. It will hit barely after some people had time to dig out from two prior storms in the Midwest and the Monday storm in the Northeast. The storm will directly impact more than two dozen states and at least 100 million people with snow and/or ice. Travel delays and disruptions to daily activities are likely.

"The storm has the potential to drop six inches or more of snow on portions of Kansas, Missouri, Illinois, Indiana, Ohio, Pennsylvania, New York, Massachusetts, Vermont, New Hampshire and Maine," said AccuWeather.com meteorologist Alex Sosnowski.

"Some areas are expected to see more than a foot of snow from northeastern Pennsylvania to southern New Hampshire. There is a long list of major cities that can receive enough snow to shovel and plow. These include Kansas City, MO., St. Louis; Chicago; Indianapolis; Cleveland; Detroit; Boston; Scranton, PA.; Hartford, CT.; and Buffalo, NY."

The unfortunate souls in the path of all this will have to cope with below-normal temperatures and wind. Boston's high Tuesday of 35 was expected to drop to 34 Wednesday and 30 on Thursday with winds averaging 11 to 13 mph. The normal high in Boston is 37. New York City's high Tuesday of 35 was forecast to rise to 37 Wednesday before dropping to 31 on Thursday. Winds were expected to be in the 7 mph range. The seasonal high in New York is 39.

Gas prices leapt. Gas for Wednesday delivery to the Algonquin Citygates jumped $11.88 to $23.20, and deliveries to Iroquois Waddington added $4.99 to $13.21. Parcels destined for Tennessee Zone 6 200 L rose by $7.77 to $20.04.

Next-day deliveries to Transco-Leidy were flat at $3.26, but gas on Dominion surged $1.10 to $5.78. Deliveries to Tetco M-3 added a stout 93 cents to $6.43, and gas bound for New York City on Transco Zone 6 gained $3.62 to $9.59.

The nation's midsection is expected to be particularly hard hit. Detroit's 24 high on Tuesday is expected to reach 27 on Wednesday before sliding to 18 on Thursday. Winds are seen at 11 to 13 mph, and the normal high in Detroit this time of year is 33. Chicago's high Tuesday of 25 is seen falling to 23 Wednesday before sliding to a mind-numbing 7 by Thursday. Winds were forecast at 13 mph and the normal early February high in Chicago is 33. Kansas City's 25 high on Tuesday was predicted to drop to 10 on Wednesday and Thursday, 32 degrees below normal. Winds were expected to average 10 to 11 mph before dropping to 3 by Thursday.

Tom Skilling of the Chicago Weather Center said Wednesday's forecast had snow totals "ranging from 2 to 4 inches west and northwest...to 4 to 6 inches in Chicago with some locally higher totals possible south and downstate in Illinois and Indiana. Gusty north to northeast winds 10 to 22 mph may promote some drifting in open areas. Temperatures in the 20s in the morning settle into the mid to upper teens by night Wednesday. Flurries and a good deal of cloudiness linger into Wednesday night with partial clearing likely late. Northwest overnight winds 8 to 18 mph. Lows dip to 11-below colder inland locations to 5-below O'Hare and just below 0 in the Loop."

Wednesday deliveries on Alliance added $1.13 to $8.59, and gas at the Chicago Citygates rose by $1.68 to $8.59. On Northern Natural Ventura, parcels for Wednesday came in $2.05 higher to $9.37, and on Consumers gas added 94 cents to $8.92. Deliveries to Michcon gained 89 cents to $8.35, and at Dawn next-day gas rose 57 cents to $8.96.

Gulf points far removed from the onslaught of the cold posted plump gains. Wednesday gas at the Henry Hub rose 73 cents to $5.75, and deliveries on ANR SE added 70 cents to $5.65. Gas on Columbia Mainline was seen at $5.70, up 70 cents, and parcels on Tennessee 500 L rose 75 cents to $5.77.

The severe weather was not lost on the pipelines responsible for transporting gas to the Midwest and East. NGPL said it is "declaring a Critical Time in its Market Delivery Zone effective gas day, Thursday, Feb. 6, which will remain in effect until further notice. This action is in response to the current forecast for continued extreme cold weather, the high demand for gas on Natural's system, and the need to maintain system pressures in its Market Delivery Zone. Based on the current weather forecast, the Critical Time is anticipated to continue in effect at least through the end of the gas day, Tuesday Feb. 11, 2014.”

Columbia said Thursday "will be deemed to be a Critical Day for storage." The company said it would evaluate the need for other Critical Days past Feb. 6 and would provide notice as needed. "Based on forecasted cold weather, storage inventory levels, supplies, markets, and storage withdrawals, [the company] projects that all available storage withdrawal capacity will be required to meet firm service obligations."

Futures traders saw the day's 47-cent surge due to traders calculating end-of-season inventory levels, "and just the ridiculous weather we are having in the Northeast. It's been the worst winter in 20 years between the cold and snow. We are going to have another 7 inches of snow tonight and for Sunday; they are saying we could have up to 30 inches, a blizzard," said a New York floor trader.

"We haven't taken out recent contract highs, but I think that's in the cards."

March futures traded as high as $5.486 last Wednesday.

"We are expecting some big storage numbers in the next few weeks, and I don't expect much of a sell-off. At some point we are looking at $6 gas," he said.

Near-term weather forecasts continue to show below to much below normal temperatures throughout the eastern two-thirds of the nation with the exception of Florida, but they did moderate somewhat overnight, WSI Corp. said in its Tuesday morning six- to 10-day outlook said. "[Tuesday's] forecast has trended a bit warmer in the West early in the period and in the East late. Forecast confidence remains slightly above average with relatively good large-scale model agreement and stability.

"The ECMWF [European model] is quite aggressive to warm the Midwest on days nine-10, but preference was placed in a slower moderation as there are pretty strong signals for another storm to track through the mid Mississippi Valley through the Ohio Valley, which would keep most of the Midwest below normal, especially daytime maxes."

Analysts see the $5.50 futures threshold as a tough nut to crack. "Until enough warming in the temperature views is seen to lift [end of season] supply expectations back up toward 1.2 Tcf or more, this market will remain vulnerable to another price up-spike," said Jim Ritterbusch of Ritterbusch and Associates in closing comments to clients. "As a result, we are maintaining our expected trading range of about $4.68-5.48 when extending a view out across this week and into the early part of next. Within a market that can swing as much as 70 to 80 cents in a single session, we will suggest trading off of our aforementioned parameters with a time frame of about two to three sessions.

"Meanwhile, we still see renewed strengthening in the popular March-April spread a trade that we still see as a proxy for an outright position. All in all, we will be expecting a run at last week highs but with a likely return to record high production limiting gains to above the $5.50 level. Until some normal or milder than usual temperature trends appear on the horizon, price sell-offs are apt to prove limited in both magnitude and duration as was evidenced again [Monday]."

Addison Armstrong of Tradition Energy sees gas prices "pushing back above $5.00 on expectations that end-of-withdrawal season inventory will fall to the lowest level in a decade. Also, the potential that more than 700 Bcf will be pulled from storage in the next couple weeks has helped boost the market. But milder weather forecasts for the second half of February and near-record production levels of gas should provide resistance to rising gas prices."

ISSN © 2577-9877 | ISSN © 1532-1231

Recent Articles by Bill Burson

Comments powered by Disqus