The cash market jumped nearly 29 cents on average Tuesday as a cold front dropped high temperatures recorded early in the day by as much as 20 degrees in just minutes. Northeast and eastern points in the crosshairs of the cold front jumped the most, with some points realizing multi-dollar gains. Gulf and Great Lakes points were also strong. December futures added 16.9 cents to $3.739 and January advanced 16.2 cents to $3.857. December crude oil slipped 19 cents to $85.38/bbl.

New England points saw gains of more than $3 as temperatures Tuesday fell 15 degrees within the space of hours. Worcester, MA, saw its high of 61 plunge to 42. Wednesday’s high is forecast to be only 46, and Thursday, 45, according to Wunderground.com. The normal high in Worcester at this time of year is 49. Hartford, CT’s Tuesday high of 63 dropped 20 degrees and Wednesday is expected to be no higher than 46, and Thursday, 48. The seasonal high in Hartford is 53.

Wednesday gas on Algonquin soared $3.07 to an average of $7.71, and next-day deliveries into Iroquois Waddington jumped $1.44 to $6.07. Gas on Tennessee Zone 6 200 L vaulted $3.15 to $7.82.

The surge in prices was felt in the Great Lakes as well, and buyers were reluctant to chase the market. “Gas on Consumers was $3.90 and we didn’t buy,” said a Michigan marketer. “The last time we bought, it was only $3.53, and temperatures are supposed to go up to 50 by the weekend. At this point we are just adding to customer’s storage and trying to figure out how much to put in. We saw some weather forecasts that showed things not being too bad to the end of the month, so we are hesitant to buy at these higher prices.”

Quotes at Chicago Citygate gained 14 cents to average $3.87, and next-day deliveries on Michcon rose about 16 cents to $3.90. Gas on Consumers was quoted a dime higher at $3.87, and parcels on Alliance added 7 cents to $3.84. Gas at Dawn gained 13 cents to $4.12.

East and Gulf points were strong. Deliveries on Dominion added 25 cents to average $3.78, and gas into Tetco M-3 rose 27 cents to $3.99. Gas bound for New York on Transco Zone 6 jumped 33 cents to $4.02.

Buyers on ANR SE had to pay 18 cents more at an average $3.57, and deliveries to Transco Zone 3 were up 20 cents to $3.66. Deliveries on Tetco E LA added 20 cents to $3.59, and at the Henry Hub Wednesday gas averaged $3.57, or 17 cents higher.

Bentek Energy issued a report documenting some of the changes it expects in the natural gas market in the next several years. Its calculations show that the Southeast is expected to be net short 3.3 Bcf/d of gas in 2017 compared to 2013, prompting renewed market volatility. The Northeast is anticipated to see production growth of 9.5 Bcf/d over the next five years, and this will transform the North American gas market.

As the Northeast becomes a net supply region over the next five years, it will displace a hefty 6 Bcf/d in pipeline flows to the region, and the U.S. West is expected to be 0.9 Bcf/d net short gas in 2017 compared to 2013. Changing market conditions will shift gas price premiums to the West.

Futures traders Tuesday were caught a little off guard. “We just heard that cold weather was moving in, and nobody else had heard anything else,” said a New York floor trader. The trader did admit that estimates of Thursday’s inventory figures had changed from a build to a draw.

“They originally said a build of 3 or 4 Bcf, and now they are saying a draw of about 8 Bcf, so that might be a little push on the market. We are getting into that season now.”

“This market has begun the new week in strong fashion as it responds to some colder short-term temperature patterns than had previously been expected,” said Jim Ritterbusch of Ritterbusch and Associates. “But we still look for additional price gains to be limited by what appears to be some broad-based warming trends within the six-15 day time window.

“This week’s price action has reinforced our view that a price decline in December futures to below the $3.47 mark will be extremely difficult short of a record warming trend that extends into December. So while we feel that it is premature to rule out a re-visit to [Monday’s] lows, we have shifted our trading posture from bearish to neutral as we await some renewed price weakness to establish a bullish bias.”

Contrary to the present market exuberance, the research team at Goldman Sachs suggests that elevated natural gas prices are not likely for 2013. Specifically, analysts looked at coal-to-gas switching and concluded that the shape of the coal-to-gas substitution stack in the U.S. suggests that 2013 prices are unlikely to remain in the $3.50-4.25 range as there is relatively limited incremental switching demand to be had in this price range.

They base that conclusion largely on the weather. “Weather remains the key swing factor on the demand side and, therefore, a key risk to our 2013 natural gas price forecast, in particular to the downside as the coal-to-gas substitution stack suggests mild weather this coming winter will have a larger impact on prices than cold weather,” Goldman Sachs said.

Tom Saal, vice president of INTL FC Stone in Miami, looked for the market to work lower and then higher. In his work with Market Profile, he anticipated that the market would test Monday’s value area at $3.506 to $3.556 before testing a weekly value area at $3.779 to $3.627. Typically, the prior day’s value area is filled the next day.

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