Wide variations in natural gas pricing marked the week ended Feb. 21 as multi-dollar gains in the Midwest and Midcontinent along with a five-year high reached by the March futures offset large dollar losses in the East and smaller declines nearly everywhere else.

For the week theNGI National Weekly Spot Gas Average gained 27 cents to $7.80 and of the individual market points lightly traded ANR ML7 posted the greatest gain of $6.40 to average $16.95 followed by an increase on Michcon of $5.79 to $15.22. The biggest decliners were in the East with Transco Zone 6 nonNY dropping $6.51 to average $6.06, and Transco Zone 6 NY falling $6.33 to $6.48.

Regionally the Midwest and Midcontinent saw the greatest gains of $4.29 to $14.62 and $1.44 to $9.05, respectively. California was the only other region posting a gain, tacking on 16 cents to average $6.24.

The Northeast fell the most losing $2.00 to $7.59; East Texas was down on the week 56 cents to $5.74 and South Texas slid 53 cents to $5.76. South Louisiana dropped 51 cents to $5.92.

The Rocky Mountains shed just 2 cents to $6.00.

March futures finished the week at $6.135, up a stout 18% or 92.1 cents on the week. It was the highest settlement in more than five years. The Energy Information Administration (EIA) reported a withdrawal of 250 Bcf, about what the market was expecting, but after traders factored in a 7 Bcf upward revision to last week's inventories, much of the early bullish luster had worn off.

Given the 60-cent surge on Wednesday by the March contract the market response to the 250 Bcf withdrawal reported by the EIA was relatively mild. "People were looking for a number between 255 to 265 Bcf, but the market actually rallied from $6.01 to $6.04 before falling," said a New York floor trader once the number came out. "I think once traders factored in the 7 Bcf adjustment is when prices fell."

Analysts still see a bullish environment. "Although the 250 Bcf net withdrawal was slightly less than some of the newswire surveys, this was still a very supportive number that added 116 Bcf onto the year-on-five-year average deficit," said Tim Evans of Citi Futures Perspective. "With more cold in the forecast, we think the initial 'sell the news' reaction should prove short-lived, and that the upside will remain open."

Inventories now stand at 1,443 Bcf and are 975 Bcf less than last year and 741 Bcf below the 5-year average. In the East Region 129 Bcf were withdrawn and in the West Region 30 Bcf were pulled. Inventories in the Producing Region fell by 91 Bcf.

In Friday's trading physical natural gas for weekend and Monday delivery continued to forge higher. Points with connectivity to the Dawn Hub in western Ontario showed double-digit dollar gains and gains of 50 cents to $1 or more were common elsewhere. A couple of Marcellus points in the Northeast showed declines.

At the close of futures trading the March contract was able to hold $6 but was outgained by the April contract. March added 7.1 cents from Thursday to $6.135, marking a 92.1 cent, or 18% gain over the previous week's $5.214 finish and April natural gas rose by 15.6 cents to $5.012.

Futures traders saw the higher gains on the April contract at the expense of the March due to profit-taking on the volatile March-April spread. "I'm thinking there is a little unwinding going on," said a New York floor trader. "The volatility on that spread has sent some traders to the poorhouse," he said.

Analysts see March futures capable of going another 50 cents higher. "While this market saw heightened volatility following release of the EIA storage report, it appears that the short temperature views are still ruling as far as near-term price direction is concerned," said Jim Ritterbusch of Ritterbusch and Associates in closing comments to clients. "The 250 Bcf indicated storage draw closely aligned with average industry expectations and looked dead neutral. Following some post-EIA profit-taking, nearby futures advanced back into the plus column with this resiliency reinforcing our opinion that fresh highs still lie ahead. While the low volume $6.40 highs established overnight might appear out of reach, we view this level as achievable with a possible brief run at the $6.68 region still on the table ahead of next Wednesday's expiry."

One school of thought is that the market has it all wrong and that current high prices predicated on a difficult storage rebuild are all wrong. Morgan Stanley analysts Adam Longson and Tai Liu told Barrons that "winter will, you know, end at some point. The move looks too far, too fast." They argue that the market has overestimated the cost to refill the national gas stockpile.

They say that U.S. replenishing capability is strong enough and that the commodity might even trade under $4/MMBtu by the third quarter.

The important components of their argument are demand headwinds from loss of heating demand, poor power load growth and renewables growth; gas-to-coal switching with higher prices; supply returning from freeze-offs and more supply coming online with new infrastructure; the fact that more of the restocking need is in the oversupplied East region; and potential supply creep outside the Northeast if high prices are sustained.

The case is built in part on the idea that supply bottlenecks and production freeze-offs have played a bigger role than most investors appreciate this winter.

At the Dawn Hub Friday gas for weekend and Monday delivery jumped a stout $12.38 to $28.03, and points upstream were pulled along accordingly. Not only is low Dawn storage a consideration, but weather forecasts showed the first signs of pending cold expected to hit the Great Lakes and Upper Midwest hard next week.

Forecaster Wunderground.com predicted that the Friday high in Detroit of 33 degrees would rise to 36 Saturday before dropping to 27 on Monday. The normal high in Detroit at this time of year is 37. Toronto's Friday peak of 39 was anticipated to drop to 33 Saturday and plunge to 21 on Monday; the seasonal high in Toronto is 32. Cleveland's 37 high on Friday was anticipated to reach 40 on Saturday before sliding to just 23 on Monday. The normal high in Cleveland is 14 degrees higher.

Ahead of the cold, forecasters called for freezing rain and sleet. "A relatively strong cold front will stretch from the Southeast to the Great Lakes on Friday, pushing an active weather system across several regions. Severe thunderstorms will be possible over Florida, Georgia, the Carolinas, Virginia and Maryland," said Wunderground.com meteorologist Kari Kiefer, "[M]ore moderate thunderstorms are expected to develop behind the cold front. Meanwhile, low pressure along the northern portion of the cold front will trigger rain, freezing rain and sleet across parts of the northern Mid-Atlantic and New England. This system will also bring a chance of spotty snow showers to the Great Lakes and the upper Midwest, while the southern Plains will stay mostly clear of wet weather."

Deliveries for the weekend and Monday on Alliance soared $14.40 to average $27.57, and gas at Northern Natural Ventura jumped $16.35 to average $29.92. Gas on Consumers came in $14.67 higher at $28.27, and on Michcon weekend and Monday parcels rose by $13.62 to $27.24. Packages on Northern Border Ventura vaulted $16.10 to $28.89.

Chicago Citygates for the weekend and Monday finished at $17.58, up a hefty $8.88, but well behind quotes on nearby pipelines. Moving gas from the Chicago Citygates to pricier points east is tricky. "If you have capacity on ANR and you can divert it, you can get it over to Michcon, and on Panhandle Eastern you can divert back and forth on the east side of the NIPSCO system. There is also a little bit of Vector [Pipeline] capacity that moves that way," said a Houston-based pipeline industry veteran.

Eastern locations also enjoyed hefty gains. Weekend and Monday gas at the Algonquin Citygates was quoted $6.96 higher at $21.62, and deliveries to Iroquois Waddington added $6.66 to $21.53. Deliveries to Tennessee Zone 6 200 L added $7.26 to $21.92.

Points more removed from the turbulent pricing of the Great Lakes and Northeast also rose. Gas on Dominion added 66 cents to $6.20, and deliveries on Tetco M-3 Delivery rose by 68 cents to $6.66. Gas on Transco Zone 6 into New York City added $1.16 to $7.49.

Longer term weather forecasters see no change in the expected onslaught of cold air expected to hit the nation's mid-section next week and even hint at more cold beyond the two-week time frame. Commodity Weather Group President Matt Rogers said in the company's Friday morning forecast that "while we see some detail fluctuations here and there based on storm track details, the big picture remains fairly solid with a very impressive late-season cold outbreak next week that hits the Midwest the hardest with potential near or record-breaking cold conditions. The impressive consistency and consensus of all the models on the main pattern signature and its strong cold anomalies continue to strengthen our forecast confidence.

"And while the intensity of the cold relaxes a bit in the 11-15 day, we see new signs of stronger ridge rebuilding on the West Coast that would set the stage for more cold outbreaks beyond the 11-15 day range, which is consistent with the unusually persistently cold views of the European (last night) and CFS [NOAA Climate Forecast System] (this morning) weekly outlooks."