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Firm California, Strong Marcellus Dwarfed By Broad Weakness; Futures Gain

Physical gas for Tuesday delivery fell sharply at many points in Monday's trading. Particularly hard hit were locations in the Northeast, as moderating weather was seen sending Tuesday temperatures to above normal readings. Locations in and around New York and Philadelphia were softer as well, but Marcelllus points advanced. California points were steady to higher. At the close of futures trading April had advanced 3.3 cents to $4.651 and May was up 0.9 cent to $4.576. April crude oil slumped $1.46 to $101.12/bbl.

In New England next day prices swan dived as weather forecasts called for temperatures Tuesday as much as 10 degrees above seasonal norms. Forecaster Wunderground.com predicted that Boston's high of 44 would rise to 52 Tuesday before easing to 42 Wednesday. The normal mid-March high for Boston is 44. New York City's 49 high on Monday was expected to reach 59 Tuesday and then fall to 51 Wednesday. The seasonal high in New York City this time of year is 48. Baltimore's balmy 60 degree high Monday was predicted to reach 65 on Tuesday before moderating to 62 on Wednesday. The normal high in Baltimore is 52.

Prices may have weakened for Tuesday, but Wunderground.com meteorologists Tom Niziol and Tom Moore are looking for a winter storm to make a broad traverse from the Rockies to the East Coast later in the week.

"[The] system will move across the Midwest into the Northeast Tuesday night through Thursday. A swath of moderate to heavy snowfall is likely from northern Indiana through Great Lakes to Interior New England. Still lot of uncertainty to snowfall for major cities from New York through Boston."

"System strengthens Wednesday as it heads toward the East Coast. A swath of 5 to 8 inches of snow is likely from northern Ohio through interior New England with the potential to see a foot or more of snow in parts of interior New England. Models still showing some uncertainty to the amount of snow that will fall in major metro areas from New York to Boston with a trend to bring warmer air and a better chance for rain in the early part of the storm Wednesday night. The I-95 corridor from Washington to just south of New York will likely be all rain. From New York to Boston it should start as all rain Wednesday night then change quickly to snow by Thursday morning with some accumulations possible. [There will be] strong winds on the backside of the system will create near blizzard conditions across parts of upstate New York through Interior New England Wednesday night into Thursday morning."

Gas for Tuesday delivery at the Algonquin Citygates plummeted $8.35 to $7.19 and deliveries to Iroquois Waddington dropped $8.98 to $6.86. Parcels on Tennessee Zone 6 200 L tumbled $8.82 to $7.40.

Gas bound for Philadelphia and New York City weakened as well. Gas on Tetco M-3 Delivery shed 48 cents to $4.55 and gas headed for New York City on Transco Zone 6 fell 29 cents to $4.68. On Dominion next-day packages slipped 24 cents to $4.16.

Marcellus points jumped. On Transco Leidy gas gained $1.52 to $3.56 and parcels on Tennessee Zone 4 Marcellus rose $1.18 to $3.02.

Analyses all point to season ending storage well south of 1 Tcf with the lowest season-ending inventories since 2003. The bearish argument going forward is that near record marketed production of 71.5 Bcf/d is (according to EIA projections) likely to continue throughout 2014. Throw in a cool spring and summer, ample Pacific Northwest hydro, and a minimal tropical storm environment, and the groundwork is laid for stout storage injections. The EIA is forecasting ending storage at 3,670 Bcf by the end of October.

Others aren't so sure. "The problem is if we had a lot of empty pipe, and we could bring on more gas through the summer that is one thing. But we don't have a lot of extra pipelines, and 2 or 3 years down the line we will have that, but it's not there yet," observed an industry veteran.

He pointed out that Dominion and Columbia Gas TCO are essentially in the same markets, but TCO was trading at 20 cents under Nymex for the summer versus Dominion at 85 cents under. "There's a 65 cent difference between Columbia Appalachia and Dominion South Pool for the summer. What does that tell you. There's a lot of storage demand, and a lot more demand on the Columbia side which serves Ohio and parts of Kentucky and Virginia, and there will be less gas able to get there."

Longer term weather forecasters see cold and storminess prevailing for the next two weeks in the East and Northeast. Joe Bastardi of WeatherBELL Analytics in his Monday morning 20-day forecast said, "The coming 10 days have two major winter storm threats. The first is through the heart of the Midwest Tuesday night into Wednesday and then the interior Northeast Wednesday into Thursday. This has shifted north a bit from yesterday but may wiggle back south a tad until the storm gets out into the Plains. The core of the snow will be close to Chicago, with the highest amounts just south, and mainly north of New York City and Boston, but still giving them some. This is a miss for the areas hit hardest early last week.

"The models are still creating a second storm, but there's a double-barrel system, with the first one moving offshore now but a second on its tail. Moral is there is trouble in the six-10, and it's not unlike a set-up in mid-March 1956 that did produce a big storm in the coastal plain. When talking of such things, it implies that it has to be cold for this time of year, and that is the main message."

Quantitatively, WeatherBELL predicts a heating degree day (HDD) accumulation nationally of 116.5 for the six- to 10-day period. That compares to 91.7 HDD a year ago and a 30-year average 87.5. For the 11- to 15-day period it sees 102.6 HDD. A year ago 113.6 HDD were tallied and the 30 year average is for 84.9 HDD.

Analysts see some residual market strength. Mike DeVooght, president of DEVO Capital, in a weekend note to clients said, "One of the key factors driving the gas market higher was the liquidation of short speculative positions that have been in place for quite some time. That buying pressure has evaporated now that those positions have been liquidated. It has been our feeling that we could see a little more strength into mid-March, but then there is a very good chance we work back towards the $4 level on the summer 14 strip. On a trading basis, we will hold current positions." The summer strip settled Friday at $4.600.

DeVooght advises trading accounts to hold a short April futures position from $5.00 to $5.10. End-users are counseled to stand aside, and those with exposure to lower prices should hold short an April-October strip from $4.20 to $4.30 (initial position) as well as a second April-October position established at $4.50.

Addison Armstrong of Tradition Energy sees "severely depleted storage levels and expectations of what will likely be a record storage withdrawal for the month of March, provid[ing] a boost to the market. But the approaching start of shoulder season and the subsequent drop-off in seasonal demand levels has the potential to provide resistance to rising gas prices in the coming weeks. Weather forecasts, after the next couple days of normal to below-normal temperatures, are expected to shift colder later this week."

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