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Midwest, Gulf Lead National Trek Lower; Futures Follow Suit

Spot natural gas prices for Thursday delivery continued their downward migration in Wednesday's trading as gas purchased during bidweek continued to become available for balance of the month. Only a handful of locations made it to the positive side of the trading ledger, and the average decline nationally was seen at close to $2.

The Midwest was hit particularly hard, with declines at some points coming in greater than $3, but the Gulf Coast was right behind, sporting losses of just under $2. At the close of futures trading, April was lower by 14.4 cents to $4.523 and May had fallen 9.9 cents to $4.484. April crude oil dropped $1.88 to $101.45/bbl.

With March NGI bidweek for the Midwest region coming in at $11.12, the highest price for the entire country, purchasers were coveting their own supplies and hoping to avoid purchasing as much high-priced gas as possible. "It has been crazy days," said a Midwest utility buyer. He said his company had been running LNG and propane to supplement baseload and storage to avoid going to the spot market.

"We were running close to 300,000 Dth over the weekend. We sold 275,000 Dth on Saturday and 280,000 Dth on Sunday and not only is that March, but it's a weekend as well. We got saved on Sunday by the sun being out most of the day and we had curtailed customers. We don't have much curtailment load out there but we needed it.

"We have surpassed our record sales for November, December, January and February. We have had offers to buy balance of the month, but we said we needed it the first three days. We don't need it any more now. I suppose that was what they did, buy it for the first of the month and then see if they could make some more money the rest of the month. All the constraints and storage problems should go away after these cold spells, so I don't know what they were thinking."

"For the most part we did stay away from the high [spot] prices because we did have propane and LNG to run," he said.

Next-day gas throughout the Midwest took some heavy hits. On Alliance Thursday packages fell $3.10 to $11.12, and at the Chicago Citygates next-day gas was seen at $8.46, down $1.79. Deliveries to Northern Natural Ventura tumbled $3.45 to $8.37, and at Demarcation packages for Thursday changed hands at $6.82, down $2.38. On ANR SW next-day parcels came in at $5.83, down $2.54.

The lower prices came in spite of temperatures expected to remain well below seasonal norms. Wunderground.com predicted the high Wednesday of 18 in Milwaukee would rise to 27 Thursday and reach 40 on Friday. The normal high this time of year in Milwaukee is 38. Detroit's Wednesday high of 23 was expected to make it to 26 on Thursday and 39 by Friday. The seasonal high in Detroit is 40.

The National Weather Service in Detroit reported that "surface ridging and drier air over most of lower Michigan helped to keep snow showers confined to counties along the Ohio border earlier [Wednesday]. [A ridge] in conjunction with the surface high pressure will continue to move over the northern Great Lakes allowing drier air to filter into the area.

"With a clearing trend early in the north temperatures will have no problem crashing. Winds also play a factor in the lows...although winds will remain light overnight due to the high pressure. Still expecting sub zero lows across parts of the Saginaw Valley and The Thumb...while lows in the upper single digits to low teens will be seen to the south."

Gulf locations also took some spills. Thursday gas on ANR SE skidded $1.59 to $6.25, and packages on Transco Zone 3 fell $1.75 to $6.31. At the Henry Hub next-day gas shed $1.49 to $6.41, and on Tennessee 500 L next-day prices were seen at $6.30, down $1.70. On Tetco E LA gas came in at $6.11, down $1.56.

Wunderground.com reported the high temperature in New York City Wednesday at 38, 8 degrees below normal, but next-day gas worked lower. Thursday gas on Dominion fell $1.87 to $5.74, and on Tetco M-3 Delivery next-day packages were seen at $7.05, down $1.51. Gas headed into Transco Zone 6 non NY fell $1.53 to $6.89.

Futures traders saw the moderating temperatures as contributing to the day's slide. "The forecasts are calling for rain later in the week so at least it will be rain and not snow," said a New York floor trader. "We've still got [storage] draws for the rest of the month, and the builds won't start until April. We're looking at $4.50 on the downside and $4.75 on the upside. I think you have to look for a spot to buy this thing."

Near-term weather forecasts weakened slightly overnight. In its Wednesday morning six- to 10-day outlook WSI Corp. said its "forecast has trended a touch milder over the East and Southwest when compared to the previous forecast. Forecast confidence is considered near to slightly above average standards due to reasonably good large-scale model agreement.

"Temperatures could run slightly warmer than forecast over the Plains early, but slightly colder over the East later in the period under another digging upper-level cold trough."

By Monday WSI predicts New York City will see a high of 47, its norm for this time of year, and Chicago will reach 43, just one degree less than its average for early March.

Tim Evans of Citi Futures Perspective sees support from the cash market. "Cash market prices may only be reflecting current cold temperatures, but with Henry Hub delivery at $7.925, Chicago Citygate at $10.696, and New York (Transco Zone 6) averaging $12.283 on Tuesday, these values represent an upward tug on the futures and a motivation to pull additional gas from storage."

Evans predicts a storage pull of 147 Bcf for the week ended Feb. 28, less than last year's 150 Bcf and well above the five-year average of 105 Bcf. "If we see a five-year average draw of 8 Bcf for the last week of the month, storage would end the withdrawal season at 874 Bcf, the lowest level since 2003. We see this low storage level supporting a move back to the $5.20 high in April futures reached last week," he said.

Others aren't so sure. "[T]he fast approaching start of this spring's slack demand shoulder season and expectations that production levels will climb to new record levels above 67 Bcf/d in the coming months will provide growing resistance to rising gas prices as warmer temperatures arrive next month," said Addison Armstrong of Tradition Energy. "Weather forecasts are little-changed from yesterday, with below-normal temperatures expected across much of the East in the coming weeks."

Tom Saal, vice president at INTL FC Stone in Miami in his work with Market Profile called the day's move lower with March testing Tuesday's value area at $4.632 to $4.554. On a weekly basis Market Profile is a breakout system, and Saal pegs the week's "initial balance' at $4.712 and $4.479. Should prices break out of that range, upside targets are at $4.829 and $4.945. Downside objectives are $4.363 and $4.246.

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