In another day of volatile cash trading prompted by some colder temperatures, gas prices moved up 20-60 cents at most locations, although a few were outside that range. The western and eastern market areas included some of the smallest increases, with New York and PG&E Citygate, for example, rising only about 15 cents. Some of the larger gains were seen in the Gulf Coast and Midcontinent areas.

However, the basis spread between the Northeast market area and the Gulf Coast region weakened because of slightly milder weather expected on Thursday. New York basis (Henry Hub cash) tightened to just over 50 cents from more than 70 cents earlier in the week. Chicago basis gained ground in response to a new cold air mass moving in. Chicago prices added nearly 60 cents and moved back into positive basis territory with about a 15-cent spread compared to Henry Hub.

There is colder weather moving into the market areas in the Upper Midwest/Midcontinent and Northern Rockies. It also remained cold in the Northeast Wednesday, and although temperatures were expected to rise Thursday, the cold was expected to return over the weekend.

The short-term colder weather forecast and the large gap between current cash and futures prices has prompted the cash market strength. But the weather may be short-lived and storage levels continue to produce uncertainty regarding short-term price direction.

Despite increases in futures and cash prices on Wednesday, the storage news out of the Energy Information Administration (EIA) was undeniably bearish. The EIA reported a 34 Bcf injection which put working gas levels over the 3.3 Tcf mark for the first time in 13 years. The injection also was on the high end of market expectations which were centered at about 20 Bcf.

The EIA said that as of last Friday morning there was 3,327 Bcf of working gas in storage, which is 140 Bcf more than the same time last year and 266 Bcf (9%) more than the five-year average.

Tim Evans of IFR Energy Services said he sees Wednesday’s price increases as “just a pause in the developing downtrend.”

“Colder temperatures this week may shift the balance and it is time to start seeing withdrawals from the market, but the ample flow of supply that has resulted in above average injections may also contribute to below-average withdrawals. A warming trend into next week also suggests that any support due to this week’s chill may prove fleeting.”

The National Weather Service’s six- to 10-day forecast calls for above normal temperatures over the Midwest, eastern Midcontinent, Great Lakes, Ohio Valley and most of the Northeast. Below normal temperatures are expected over the nearly the entire Pacific and Southwest regions. The remaining areas, including the Mid Atlantic, Southeast, Gulf Coast, Texas and part of the Northern Rockies, are expected to see normal temperatures.

Offsetting any mild weather going forward will be continued Gulf of Mexico production shut-ins. The Minerals Management Service (MMS) reported Wednesday that 692.36 MMcf/d of natural gas production and 205,054 bbl/d of oil production remain offline because of damage from Hurricane Ivan. Based on reports from 18 companies, nine platforms and one rig remain evacuated. Cumulative deferred gas production now totals 116.90 Bcf.

©Copyright 2004 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.