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Herculean New England Gains Outpace Broader Market; Futures Drop

Physical natural gas prices for Thursday delivery on balance gained over 50 cents, but double-dollar gains in New England and along the Atlantic Seaboard were more than able to offset weaker quotes in the Midwest, Midcontinent, California and the Rockies. The gains on Wednesday were weather-driven as a fast moving winter storm was moving to the East Coast through Friday. At the close of futures trading, April had dropped 11.5 cents to $4.490, and May was off 10.3 cents to $4.441. April crude oil slumped $2.04 to $97.99/bbl.

Prices at New England locations enjoyed the greatest gains as high temperatures Thursday were expected to be 15 degrees or so below normal but then quickly recover. Wunderground.com predicted the high temperature on Wednesday in Boston would be 47 before plummeting to 27 Thursday back to 41 on Friday. The seasonal high in Boston is 44. Hanover, NH 's high of 34 was slated to drop to 16 Thursday before moving back to 34 on Friday; Hanover normally sees a high of 37. In New Haven, CT the high was expected to reach 51 on Wednesday, slide to 26 Thursday then move back to 40 by Friday, the seasonal norm.

The National Weather Service in southeast Massachusetts reported "an intensifying low pressure will cross southern New England," with rain transitioning to snow as the low pressure moved in. Temperatures were to plunge overnight, "allowing for a flash freeze," followed by bitter cold and strong winds Thursday "with lingering snow showers" into the afternoon. Mild weather was forecast to return by the end of the week "before another surge of colder air arrives Sunday into early next week."

At the Algonquin Citygates, gas for Thursday delivery bounded higher by $15.60 to average $23.91 and packages at Iroquois Waddington jumped $8.11 to $16.36. On Tennessee Zone 6 200 L, gas for Thursday jumped $15.66 to $24.07.

On the backside of the west-to-east storm system there were rising temperatures for Thursday and falling prices. Wunderground.com predicted the high in Milwaukee of 23 Wednesday would reach 37  Thursday and 47 on Friday -- the normal high is 41. Chicago's high of 23 on Wednesday was expected to rise to 36 on Thursday and 49 on Friday, close to the seasonal high of 45. Detroit's temperatures only reached 20 degrees Wednesday, and were only expected to inch to 23 Thursday before jumping to 47 on Friday; the seasonal high is 42.

"Gusty southwest winds carry in warmer air" Thursday, said Chicago City Weather Center meteorologist Tom Skilling. "Nighttime readings hold above 30 degrees" on Friday. "Strong southwest winds strengthen the warming in advance of cooler air that arrives late at night. Afternoon readings top 50 degrees."

Gas for delivery Thursday on Alliance tumbled 89 cents to average $6.31, and packages at the Chicago Citygates slumped 9 cents to $5.29. On Northern Natural Ventura, parcels for Thursday changed hands at $5.04, down $1.06, and at the Joliet Hub, gas was seen at $6.29, down 86 cents. Gas on Michcon fell 66 cents to $6.80, and on Consumers, Thursday gas retreated 79 cents to $6.85.

Marketers in the area haven't been buying much gas. "The spot price is less than what we paid for our March baseload," said a Michigan marketer. "We bought ahead of the Index [Consumers and Michcon] and prices ended up in the $12.00 area. They are not that high anymore."

With the weather being so variable, the wisdom of the earlier purchases may yet bear fruit. "We just don't know going forward. The weather report changes every day and one day it looks warmer, and the next day they are cooling it down. I don't know where we will end up by the end of the month."

Gas for delivery to Appalachia and the Marcellus was mixed. On Columbia TCO, gas was quoted for Thursday delivery at $4.73, down 3 cents, but on Dominion next-day packages came in at $4.64, up 14 cents. Parcels on Transco Leidy added a dime to $4.10, but gas on Tennessee Zone 4 Marcellus fell a dime to $3.39.

On Tetco M-3, gas for delivery Thursday changed hands at $10.53, up $5.64, and gas headed for New York City on Transco Zone 6 surged $15.50 to $21.95.

"We made colder short-range changes to the Northeast, especially as a powerful winter storm winds up strongly later" Wednesday, said forecaster Commodity Weather Group in its Wednesday morning report. "While major snow should miss the core of the major metropolitan areas, very strong low pressure wraps around sharper cold air into these cities by [Thursday] morning with lingering effects through Friday morning.

"Intense wind chills also significantly enhance demand during this interval. Otherwise, the six-15 day outlook is mostly similar to [Tuesday] with a cold-prevailing variable pattern. The Midwest is same-to-colder overall, while the Deep South and Texas are sometimes a bit warmer," said President Matt Rogers. "There are plenty of day-to-day detail challenges, but on the six-10 and 11-15 day big picture composites, there is somewhat better ensemble model agreement today allowing us to increment confidence up a bit higher."

Thursday's storage report by the Department of Energy's (DOE) Energy Information Agency is likely to be a zinger, with estimates crowding if not exceeding 200 Bcf, but "the natural gas market also seems relatively complacent regarding Thursday's DOE storage report, with traders apparently confident that everyone already knows it was cold last week and that it has all been effectively discounted into the price," said Tim Evans of Citi Futures Perspective before Wednesday's open.

"However, we note that the 152 Bcf draw in the prior week was supportive for prices and we're looking for a larger drop for the week ended March 7. Our model points to 185 Bcf in net withdrawals, but it looks as though it could be even more, with the early consensus looking like 200 Bcf or even somewhat more."

Evans contended that the "growing deficit confirms the market is becoming physically tighter on a seasonally adjusted basis, which typically turns into support for prices over the intermediate term, limiting the downside if not actually driving the market higher."

Expectations for Thursday's storage report call for a draw well above historical norms. Last year 145 Bcf was withdrawn and the five-year average is for a 95 Bcf pull. Houston-based IAF Advisors calculated a withdrawal of 203 Bcf and a Reuters poll of 21 traders and analysts saw an average 196 Bcf with a range of 176 Bcf to 210 Bcf. Ritterbusch and Associates expected a reduction of 190 Bcf.

Industry consultant Genscape Inc. said the storm and cold marching eastward has caused an immediate uptick in demand. "After the recent cold front that rolled through the Midwest into the East [Tuesday] night, Appalachia demand has increased plus-3.3 Bcf/d to 15.3 Bcf/d since [Tuesday's] 12.0 Bcf/d. Imports via TGP and Tetco both increased. However, as Appalachia demand declines with warmer weather, imports from southeast are the first to be pushed back."

Tom Saal, vice president at INTL FC Stone in Miami, expects to see "continued 'horizontal' pricing at $4.608." In his view, "a big move should be coming. The back years showing strength, Cal'15, Cal'17 & Cal'19." In his work with Market Profile he expected the market to test Tuesday's value area at $4.619-4.583. He calculated the week's initial balance at $4.678-4.556, and on a breakout higher he looks for objectives at $4.739 and $4.800, and should the market breach the lower end of the initial balance he sees downside targets at $4.495 and $4.434.

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