Next-day prices at East and Northeast points screamed higher Tuesday, some by as much as $13, as temperatures dipped well below freezing. Overall, the market averaged a 97-cent gain. If the weather-driven gains in New England and Mid-Atlantic points are factored out, however, cash prices rose by just 6 cents.
High next-day power prices and unrelenting colder temperatures prompted the gains. All points rose with the exception of a few locations. Futures slipped lower. At the close February was down 0.8 cent to $3.558 and March was off by 0.7 cent to $3.558 as well. The expiring February crude oil climbed 68 cents to $96.24/bbl.
Northeast traders reported bid-offer spreads of as much as a dollar, and “everybody is trying to get 50 cents to $1 more than the last trade. It depends on the time of day, and sometimes it can be pretty tight, but sometimes people will lift offers and just hit bids,” said a Houston-based marketer. “The market will start trading along at $18 or $19, and everything seems to be moving along and then all of a sudden some power guys come out and buy power which will support higher gas prices and guys are lifting offers left and right. It doesn’t take long to pull things back up.
“Iroquois Waddington traded early on at $8 but got up to as high as $24 at one point. There are indications of an outage on TransCanada which is preventing interruptible gas from flowing to Waddington. Buyers were out early trying to cover their sales,” he said.
Next-day power prices provided much of the impetus for higher next-day gas. IntercontinentalExchange reported Wednesday peak power at the New England Power Pool’s Massachusetts Hub vaulted $51.30 to $180.52/MWh and next-day peak power at the PJM West Hub gained $11.14 to $71.43/MWh.
Higher power prices may be here to stay for a while. The New England Independent System Operator predicted peak loads Tuesday of 20,100 MW, yet Wednesday’s peak load was forecast to reach 20,500 MW and Thursday’s was 20,570 MW.
Driving the high power and gas demand are continuing bitter cold. AccuWeather.com meteorologists expect cold weather “will stick around through the weekend from the Upper Midwest to the mid-Atlantic and New England. The bitterly cold air will slosh out by the end of the week and will not dip into the Deep South.
“Moderate cold (lower-than-average temperatures) will remain in place into Sunday in most areas farther north. “The coldest air mass in North America was sitting just north of the Great Lakes over central and northern Ontario and western and central Quebec Tuesday morning,” according to AccuWeather.com meteorologist Henry Margusity.
AccuWeather.com data indicate that the arctic outbreak will be the result of the stratospheric warming. The cold pattern delivered by this stratospheric event generally lasts two weeks to a two months.
Gas for delivery Wednesday on Algonquin Citygates jumped $8.77, to $21.14 and deliveries on Iroquois Waddington rose $13.89 to $19.73. Gas on Tennessee Zone 6 200 L added $9.01 to $20.78.
Gains were also posted farther south. On Tetco M-3, Wednesday deliveries were seen at an average $8.47, or $3.09 higher, and gas on Dominion gained 16 cents to $3.65. Gas bound for New York City on Transco Zone 6 shot $6.56 higher to $22.26.
Other trading points posted solid gains, but nothing on a par with the East and Northeast. Chicago Citygate gas increased a dime to $3.87 and deliveries to NGPL Midcontinent Pool rose 4 cents to $3.56. Henry Hub was quoted 9 cents higher at $3.63 and El Paso Permian came in 4 cents higher at $3.51.
The Houston trader said “usually there is a day when everything goes crazy, but then everyone figures out what they can do and says ‘well prices are this high and I am going to try and capture the high.’ More people come out with gas. Also the LNG market is not supplied into the market this year as much as it has been in the past.”
Futures traders see the day’s low posted by the February contract at $3.505 as technical support. “$3.50 is definitely support. We got down to $3.505 and the market held,” said a New York floor trader. “I would assume that there are some buy stops up at $3.65.”
Prior to the holiday weekend, futures traders attributed Friday’s gains to last minute short-covering on a revised weather outlook. “The 10- to 14-day forecast got tweaked at the end of the day, and some of the weaker shorts covered,” said John Woods of J. J. Woods and Associates.
Woods was not looking at February’s rise to just under $3.57 as a sign that any fundamental shift was underway. “I look for prices to reach maybe $3.63, but the market went out offered. You are pretty much at the top end of the range right here. You sell on Tuesday and call it a week. The upside here is severely limited. If it gets beyond that something has fundamentally changed the market.”
Others suggest that prices may have further to go.
“Expectations for strengthening seasonal demand fundamentals in the coming weeks continue to trigger short-covering and fresh technical buying, which has pushed the prompt contract nearly 60 cents higher in the past couple of weeks,” said Tradition Energy’s Addison Armstrong. “Temperatures are expected to fluctuate in the coming weeks, with below to well-below-average temperatures expected across the East in the next five days followed by a shift warmer in the six-10 day forecast before a shift colder in the latter part of this month and the early part of February.”
Risk managers and longer term players aren’t ready to make a move in the market.”Fundamentally, not much has changed in the gas market. We do feel the highest probability is for the gas market to continue to trade in the $3-4 range over the next few months,” said Mike DeVooght in a weekly letter to clients. “We covered our short positions last week and will now look for a substantial rally ($3.60-4.00) to resell this market.”
DeVooght currently advises trading accounts and end users to stand aside. Those with exposure to lower prices should hold on to the balance of the winter strip previously sold at $3.75 to 3.95 and “continue to sell any winter months above 3.75-$3.95 (light position).”
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