Cash prices rode the Nymex higher again on Friday with the help of continued colder temperatures across most of the Midwest and East and little change in the forecast for most of the country. Nymex soared 60 cents to $7.22 and many cash points were up 10-20 cents.

However, cash prices in the Northeast, where temperatures were forecast to continue falling about 10 more degrees on Saturday and Sunday, rose more than 50 cents at some locations, most notably Transco Zone 6 New York.

“New York was quite a bit stronger than most of the other points up here. We are expecting colder than normal temperatures over the weekend and even a Nor’easter, but they have revised the forecast for Monday up quite a few degrees so prices in New England came off hard toward the end of trading,” said a regional marketer. “Basis at Dracut was around 50 cents compared to New York, which was like $1.20.”

Gulf Coast prices were up about 10-15 cents on average with Henry and Transco Station 65 on the high end. Midcontinent and Midwest points added 10-20 cents, but some locations saw much smaller gains. Demarc actually was down a penny or two.

“We bought Consumers Energy at $6.88 and MichCon at $6.86 but that was early before all this happened on Nymex. It’s cold up here in Michigan but not that bad — upper 20s with wind. We sure are having to pay up for this gas and it’s only December. But if the winter turns out mild, maybe it will come crashing down. We’re expecting temperatures to moderate a little bit next week.”

A Southwestern marketer said forecasts for the weekend showed relatively normal temperatures and the outlook for next week is for a similar temperature pattern with continued relative cold in the Midwest/Midcontinent and East and mild weather in the West. The six to 10-day forecast from the National Weather Service has the western two-thirds of the nation warmer than normal and the Mid Atlantic and Southeast below normal. The Northeast is forecast to have normal temperatures.

Waha prices Friday were up about 10 cents on average but ended the day on a soft note. Some Midcontinent points such as ANR Southwest only managed to rise about a penny or two and Ventura fell. California border was up a dime.

“It depended on the area and the weather there. Nymex clearly provided most of the support. But storage injection incentives also are helping prop up prices,” said a Southwest buyer. “It still works to put gas in storage. You can see the spreads and when there is no weather you can see storage-related buying. There is like 30 cents between cash and January prices. January Waha is basically flat at $6.50, but ANR SW for January is about $6.61 or 20 cents higher than current prices. The Southern California border for next month is like $6.40 and today it was trading at $6.10-20 so there’s definitely an incentive there for storage.”

Nevertheless most sources believe the next storage report could show a withdrawal even greater than the 111 Bcf announced last week, which reported the withdrawal for the previous week. “For [last] week, the total population weighted heating degree days forecast are slightly higher than [the previous] week (182 versus 174),” said Tim Evans, futures analyst with IFR Pegasus. “That would lead you to believe that we’ll get a withdrawal maybe a little higher than 111 Bcf. But I’m not sure if we reached that forecast level of heating degree days [last] week because [Thursday] it hit 60 degrees in New York City.”

Evans admitted that withdrawals have been running larger than expected lately for whatever reason. Thomas Driscoll of Lehman Brothers said that for the past four weeks withdrawals have averaged 7.3 Bcf/d versus the five-year average withdrawal of 5.8 Bcf/d. “We estimate natural gas storage levels (assuming normal weather) will exit the withdrawal season at roughly 800 Bcf compared with the five-year historical average of 1,098 Bcf,” said Driscoll.

While withdrawals have been coming in strong, the problem is that the futures market has rallied 35-40% off November month-ending levels. “How much of a storage shift do you need to justify that?” Evans asked. “It seems to have gotten beyond itself here, and I think it would be good for the market to return to normal for a while in terms of price action and make a calmer assessment of the situation. We need more news about supply and demand.”

Sen. Orrin Hatch (R-UT), acting on a complaint from home state chemical maker, Huntsman LLC, said he will schedule hearings into the rising gas prices when the Congress returns next year. The senator said he will be looking for illegal market manipulation, which Huntsman has blamed for the price increases (see related story, this issue and Daily GPI, Dec. 11).

The year-on-year and five-year storage comparisons also still show a surplus. Furthermore, in mid-December 2002 near-month futures were trading at $5.18 and that was in response to larger storage withdrawals and intense cold weather. There are some significant fundamentals that seem to be absent from this market but necessary to continue the current price trend, according to Evans.

“What that says to me is that the potential to get back to $10 this year is slipping,” he said. “We weren’t as cold last week as we were last year; we aren’t as cold this week as we were last year. This is where we are getting farther away from a repeat of the $10 scenario. If that’s true, then $7 is sounding more expensive.”

Many cash market observers during the week have commented on the untamed nature of the futures market lately, the hyper-volatility and the apparently shorter leash between futures and cash. “This is just a big wild tiger and once you’ve climbed on its back you had better hold on,” a Northeast LDC buyer said.

“Not too many people have really said it, but it’s at times like these that you really miss EnronOnline,” said a Gulf Coast marketer. “Nymex is like creative chaos. Somehow out of the melee there you do bring buyers and sellers together and find price discovery. You know that futures prices, as chaotic as they are, are real and are determined by that open outcry process and it’s not just someone in their own little closet trying to figure out what price they can post and make money with. But there’s a clear disconnect between the fundamentals of the cash market and the magic that drives futures,” he said.

“We’ve seemed to lose all sense of proportion in terms of what makes a rational price move. Thursday’s [futures] trading range was 1 cent smaller than the trading range for the entire month of November. Now that’s amazing…shocking really.”

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