Despite little change in fundamentals, March natural gas futures recorded a third consecutive decline Wednesday to expire at $4.855, down 24.1 cents from Tuesday's finish, and $1.28, or 21% below Friday's close of $6.135. April natural gas, which takes up the prompt contract mantle, ended Wednesday at $4.541, down 15 cents from Tuesday's close.

Physical natural gas prices for Thursday delivery on average rose in Wednesday's trading, with the strength resonating at points impacted by brutal polar vortex cold in the Midwest and Upper Great Lakes with multi-dollar gains common. Gulf locations eased, but eastern, Rockies, Midcontinent and West Coast points were mostly higher.

Futures traders, who were still attempting to explain the three-day freefall (see Daily GPI, Feb. 25), were optimistic that with the volatile March contract off the board, April was ready to stabilize. "I think we will get some bottoming in the April contract," said a New York floor trader. "The 10- to 14-day weather forecast is a little milder, but I still think April is a 'buy' at $4.50 and we will head back to $4.80 to $4.85 over the next couple of days."

Traders see the recent wild gyrations in the March contract as divorced from market fundamentals. "With the temperature outlook still pointing to colder than normal temperatures in the eastern U.S. through the 11-15 day forecast period, it is hard to see how the underlying fundamental picture ties in with the price action so we are inclined to attribute it to an imbalance in the March trade flows than any material change in the physical market," said Tim Evans of Citi Futures Perspective. "The steadier performance of the April futures supports this hypothesis to some degree."

The high prices in the Midwest proved tempting to a Michigan marketer. "We are getting customer usage readings this afternoon [Wednesday] ahead of readings Thursday so we can sell some gas back at these higher prices. We have also heard that there have been some factories shut down in the Chicago area and DTE Energy [Michcon] has lost two storage fields. Apparently, they went too low and filled with water," the marketer said.

One industry veteran said storage fields being pulled to the point of water encroachment was common. "That's happening all over the place. I think it's happening in other locations. People are getting down to the bare bones."

Storage is becoming an intense issue (see related story). Teri Viswanath, who directs natural gas commodity strategy for BNP Paribas, told NGI on Wednesday that "based on the current weather outlook, our end March is 915 Bcf." Viswanath earlier this week said with the record storage depletion, the North American pipeline network likely would continue to encounter problems delivering gas in March.

Credit Suisse analysts Stefan Reville and Jan Stuart said they are expecting Thursday's withdrawal for the week ending Feb. 21 to come in just shy of the century mark.

"We forecast a 98 Bcf withdrawal for the week ending February 21, sending inventories to 1,345 Bcf," they said. "The forecasted pull compares to the 165 Bcf draw last year and a five-year average draw of 125 Bcf. Including this week’s forecast, a cumulative draw of 519 Bcf through the week of March 21, leads us to revise our base case end-March forecast to 929 Bcf. This end-March target would send the yoy storage deficit to 794 Bcf to begin April."

With colder weather in play, Evans projected that the year-on-five-year storage deficit would expand to 1,006 Bcf by March 14, an increase of 77 Bcf from his earlier forecast. "If storage reverts to five-year average flows in the weeks to follow, inventories would hit a low of 807 Bcf at the end of March, the lowest level since 2003. The arrival of spring may take some of the pressure off inventories as an offset to the growing storage deficit, but we continue to think the downside will prove limited and that the market can trade higher."

Evans calculated a pull of 128 Bcf in Thursday's storage report.

Others aren't quite so bullish. Untited ICAP predicted a 103 Bcf withdrawal and a Reuters survey of 23 traders and analysts revealed a sample average of 107 Bcf with a range of 96 Bcf to 128 Bcf.

Physical prices at locations in and around the Chicago markets surged as unrelenting cold was forecast. Forecaster expected the high Wednesday in Milwaukee of 12 to fall further to 7 degrees Thursday before rising to 23 on Friday. The seasonal high in Milwaukee is 36. Chicago's high Wednesday of 16 to drop to 9 degrees Thursday before climbing back to 27 Friday. The normal mid- February high in Chicago is 40.

"High pressure will slide across the area...with the center of the high passing over the Dubuque [IA] area early in the evening,” said the National Weather Service in Milwaukee. “ By 6 a.m. Friday morning, the high is over eastern Ohio/western Pennsylvania with the low level flow starting to pick up across the forecast area. This has been a tricky period with respect to low temperatures due to the potential for strong radiational cooling. Warm advection heading toward the area will cause high clouds to spread in from the west after midnight. Just how cold we can get before that blanket arrives is the biggest question."

Thursday deliveries to Alliance jumped $3.48 to average $25.61, and at the Chicago Citygates, next-day packages were seen at $19.95, up $3.29. Gas at Northern Natural Ventura vaulted $4.97 to average $25.35. Packages on Michcon rose $3.45 to $23.36, and on Consumers, gas came in at $24.28, up $3.60.

At eastern points, next-day gas rose as well. Deliveries to Tetco M-3 Delivery added $1.59 to $15.00, and gas bound for New York City on Transco Zone 6 rose $4.91 to a stout $24.44. Gas on Dominion, however, shed 9 cents to average $5.13.

Gulf points weakened. On Transco Zone 3, next-day gas fell 13 cents to $4.84 and deliveries to the Henry Hub dropped 41 cents to $4.84. On Columbia Gulf Mainline, Thursday parcels fell 31 cents to $4.82, and on Tennessee 500 L gas came in at $4.79, down 2 cents.

Weather forecasts Tuesday overnight changed little. WSI Corp. in both its six- to 10-day and 11- to 15 day outlooks saw no major changes. "No significant alterations were made to [the] six-10 day period forecast when compared to the previous forecast [and] forecast confidence remains near to slightly below average standards as a result poor agreement between the latest model guidance solutions."

WSI said, "We are in a period of increased model uncertainty as a result of models struggling with the upstream pattern over the Pacific. The latest European ensemble model forecast indicates warmer risks to the forecast over the eastern two thirds late in the period under weak ridging over the Midwest."