There had been a little doubt about whether the approach of a winter storm in the Midwest/Plains region and colder temperatures in the Northeast and parts of the West would be able to overcome the negativity of screen losses totaling about 60 cents over the course of Thursday and Monday and generate a price rally.
The outcome Tuesday was yes, there was sufficient weather load building up to push quotes higher at all points by averages ranging from about a nickel to half a dollar. A solid majority of gains were in double digits, with the largest ones tending to cluster in the Rockies and Northeast. Somewhat curiously, Midwest citygates saw most of the smaller increases despite the region being the focal point of the worst winter conditions due Wednesday.
A couple of sources agreed that although Tuesday’s natural gas futures rise of 11.2 cents came nowhere near recouping the losses of the previous two trading days, it and the fresh burst of cold weather load in northern and western market areas were likely to keep the cash market rising moderately Wednesday. The gas screen was once again taking its cures from Nymex’s petroleum-related futures offerings, where crude oil for February delivery jumped $1.79 to a little shy of $44/bbl. The crude spike was attributed to Saudi Arabia’s confirmation that it had begun a 500,000 bbl/d reduction of production on Jan. 1, along with continuing recent terrorist violence in Iraq and other oil producing nations.
The South is due to remain unseasonably warm through Wednesday, although a blast of cold is expected in Oklahoma and North Texas. But Midwest and Plains states were bracing for a frigid storm bearing snow and ice, while the Northeast could expect its own case of icy precipitation as far south as New Jersey and Long Island, according to The Weather Channel.
Precipitation was predicted to be minimal in the West for the most part, with most of it occurring in the Rockies and other mountainous areas. But temperatures were expected to stay pretty cold in most sections outside the Arizona-California border. Two pipelines reflected the West’s heating load, with Westcoast encouraging positive imbalances by setting its tolerance range at 20% pack/zero draft and Kern River reporting normal linepack systemwide. Both had been experiencing excess linepack until recently.
A Gulf Coast marketer was “not really surprised” about Tuesday’s price strength, saying the market was getting some decent weather load in the Midwest and to a lesser degree in the Northeast. He expects prices to keep seeing moderate gains Wednesday based largely on Tuesday’s screen advance, but then they’re likely to soften again as cold weather support fades.
“It all hinges on what the Northeast does,” the marketer went on. The Midwest/Plains region was contributing significantly to demand with its winter storm forecast for Tuesday night and Wednesday, but unless the Northeast chips in with weather load nearly as strong, the midweek rally probably will be over Thursday, he said. He was unaware of any current transport issues other than Florida Gas Transmission planning several maintenance projects this month (see Transportation Notes). Only a few involve major capacity cuts, though, he noted.
A producer who trades the Northeast also expressed little surprise at the rebound Tuesday. The New York City area will be back to “normal” temperatures for the next two days, then get warmer again for the weekend, he said. A “pretty decent amount” got sold into Transco Zone 6-NYC close to the point’s $7.00 peak, he said; then as more supplies arrived, it dropped back down to around $6.50.
There was a large basis spread with NYC close to $7.00 while Henry Hub traded in mid 5.70s, the producer added. That made it very easy to cover transport costs and make a good profit by buying in the production area and selling at the citygate, he said — at least for those with the necessary pipeline capacity. Some of the recent cash softness was based on pre-New Year’s Eve forecasts of temperatures “way above normal” this week in the Northeast, but the region started the week with colder than expected temperatures only a little above normal, he said. And remember, early January can be among the coldest periods of the year, so “above normal” is totally relative and not necessarily warm, he cautioned.
The National Weather Service basically divides the U.S. into “east above, west below” again in its forecast for the Jan. 10-14 workweek. Above normal temperatures are predicted everywhere east of a line that begins at the western edge of New York and runs southeastward until it begins a westerly swing that includes most of Louisiana, the Texas Gulf Coast and its border area with Mexico in the above normal category. NWS looks for below normal conditions west of a line that runs almost due south from the Minnesota-Wisconsin border before curving westward across the Texas Panhandle and then northward into the lower edge of Wyoming before heading back south again out of southwest Wyoming into eastern Utah and Arizona. A band of normal readings is due between the other two areas, NWS said.
Analyst Kyle Cooper of Citigroup said his final estimation of the storage report for the week ending Dec. 31 calls for a withdrawal of 144-154 Bcf. “This is substantially larger than our early estimation [near 130 Bcf] as additional data warrants a larger draw,” he added.
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