Physical natural gas prices averaged about a penny lower for weekend and Monday deliveries, with dollar-plus losses at eastern and Northeast pipes offsetting widespread gains at Gulf, Midcontinent and California points.
The Energy Information Administration (EIA) reported a withdrawal of 135 Bcf from storage, somewhat higher than market expectations, and futures rose. February futures gained 8.9 cents to $3.287 and March added 8.9 cents as well to $3.303. February crude oil gained 17 cents to $93.09/bbl.
Rocky Mountain producers have seen little market response to cooler temperatures at delivery points in metropolitan areas in the Midwest. For the last three days, AccuWeather.com reports that high temperatures in Chicago have been anywhere from 2 degrees to 5 degrees below normal.
“We haven’t seen much response on CIG,” said a Rocky Mountain producer. “I am looking at CIG at $3.17 and about $3.20 at the Henry Hub. That [basis] is kind of weird and there is not much spread between the front month futures and the cash market. Something usually gives when that happens.”
The producer cited forecasts of potentially mind-numbing cold that could hit the Midwest by the end of the week. “If that gets into the conversation, it could overwhelm this near-term warm spell. It’s not due for another couple of weeks, but we could be looking at an Arctic Express.”
AccuWeather.com has identified a phenomenon known as sudden stratospheric warming, which has occurred in the arctic region during the past few days. The stratosphere is located between 6 miles and 30 miles above the ground, and often “when this occurs, it forces cold air to build in the lowest layer of the atmosphere then to drive southward. The problem is the exact timing and location of the emergence of this cold air is uncertain. Typically, the movement of cold air begins 10 to 14 days later.”
Once a brief warming pattern is completed, AccuWeather.com’s long range team says, “Overlaying this with other tools, we expect to see cold air spreading out from central Canada later [this] week into week three of January. It is possible the cold push will arrive in one big blast. However, it is more likely the cold will advance along in waves of progressively colder air with each wave driving farther south and east” (see related story).
“These guys that are selling the market down the drain because they think we are going to have another winter like last year are nuts,” the producer said. “This market could turn on a dime, and it just may.”
Rockies prices were mostly flat for weekend and Monday gas, although California points managed some nominal gains. Deliveries on CIG Mainline were flat at $3.17, and gas delivered to Opal was unchanged at $3.22. Gas at the Cheyenne Hub gained a nickel to $3.22, but parcels on Northwest Pipeline Wyoming were off a penny at $3.19. Weekend and Monday gas on Questar was down a penny at $3.18.
On the West Coast, prices rose modestly. At Malin gas was quoted at an average $3.30, 3 cents higher, and deliveries to PG&E Citygate gained 4 cents to $3.56. Weekend and Monday gas at the SoCal Citygates added 5 cents to $3.50, and SoCal Border was quoted at an average $3.37, 2 cents higher. El Paso S Mainline came in at $3.44, up by 4 cents.
Gulf and Midcontinent points were steady to higher. At the Henry Hub, gas was seen a penny higher at $3.20, and at the NGPL Midcontinent Pool weekend and Monday gas gained 3 cents to $3.12.
Eastern prices continued their volatile ways. Weekend and Monday gas at the Algonquin Citygates fell 69 cents to $6.41, and gas into New York on Transco Zone 6 skidded $1.19 to $4.82.
Futures traders are optimistic prices will advance. “We traded as high as $3.299 and settled at $3.287, close to the day’s [February] high, and that’s a positive sign. We could see some upward movement on Monday,” a New York floor trader said.
Analysts were expecting a hefty, above-normal draw for the EIA inventory report. Last year, only 77 Bcf was withdrawn, and the five-year average stands at 111 Bcf, but this time around expectations were for a significantly higher pull.
Kyle Cooper at IAF Advisors was expecting a 125 Bcf withdrawal, and Bentek Energy calculated a decline of 131 Bcf. The Energy Metro Desk (EMD) survey revealed an average of 132 Bcf.
“Last week we note that degree days jumped nicely (as expected) and demand followed suit; however, the Christmas holiday was tossed into the mix and surely caused much of the ranginess in this week’s survey,” said John Sodergreen, EMD editor. “Nukes also kicked back into gear at a healthy pace last week, though this week nukes generated lower numbers than last year and the five-year average. So depending on where you sit, gas demand followed seasonal norms…”
The forecast cold notwithstanding, analysts once looking for a $4 gas price for 2013 have been forced to recalculate. David Pursell of Tudor, Pickering, Holt & Co. in Houston has lowered his price outlook considerably based on the weather outlook.
“[We] assumed three major weather scenarios for winter temps: 1) colder than normal, 2) normal, and 3) warmer than normal. We believed in two of the three cases (the colder than normal and normal) that natural gas could trade up to $4/Mcf (at which point rig count would increase and coal competition would commence), so the odds were in favor of higher gas prices this winter.
“Unfortunately, the winter has been warmer than normal (so far), which puts the alternative scenario ($2.5 to $3/Mcf gas) in play as less winter weather demand (if winter remains mild) could force gas markets to pick up incremental demand from coal…which occurs near/below $3/Mcf.”
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