Physical gas markets were led lower again by the super-sized declines posted at eastern and northeast locations. Overall, the market averaged a 33-cent decline, but if the multi-dollar losses on New England and eastern pipes are factored out, the average loss was just a nickel.

The losses were widespread, and only a handful of points escaped the pervasive selling. The expiring February contract fell 6.3 cents to $3.226 and March shed 4.7 cents to $3.258. March crude oil rose $1.13 to $97.57/bbl.

Midwest buyers were buckling up and awaiting a cold snap. “We are going to have a couple of days coming up here that are going to be kind of cold, but we will still be under-budgeted volumes for the month,” said a Midwest utility buyer.

Those with storage are taking every opportunity to unload burdensome inventories. “We pulled out as much as we could last week, and we are close to being on target with our monthly withdrawals. We hit about 240,000 Dth during those cold days. [Wednesday] and the next day should be close to that. It’s just sporadic cold days here and there,” he said.

Tom Skilling, a meteorologist at the Chicago Weather Center, predicted that “a sharp temp pullback [Wednesday] takes readings from the 40s at daybreak to the low 20s by evening. Skilling said that Chicago could see “A dusting to as much as 2 inches of snow…by late Wednesday night. West to northwest winds increase 12 to 26 and gusty 30-plus at times. Wind chills retreat to single digits by afternoon while dropping sub-zero Wednesday night. Frigid arctic air’s back in control [Thursday] with area temps 40 to 50 degrees colder than Tuesday’s record-setting 65.”

The Center calls for a Wednesday high of 43 and a low of 8, but Thursday in Chicago should see temperatures no higher than 18 and a low of 4. Friday’s high is also seen at 18 with a low of 16. The normal high in Chicago at this time of year is 32.

Quotes on Alliance for Wednesday delivery eased a couple of pennies to $3.34, and on Northern Natural Gas, Ventura gas came in at $3.35, up 3 cents. At Demarcation, Wednesday deliveries were 4 cents higher to $3.38, and at the Chicago Citygates next-day deliveries slipped 4 cents to $3.33. At the NGPL Mid-Continent Pool Wednesday parcels fell a couple of pennies to $3.11.

Quotes on eastern pipelines took big hits as a warm spell was expected to interrupt a second blast of cold, wintry weather. “Another blast of arctic air will sweep from the northern Plains to the mid-Atlantic and New England as the week progresses,” said meteorologist Alex Sosnowski. “The cold wave will follow a brief warmup that will lead to severe weather in some locations. The new wave of arctic air will be almost as cold as the first blast that hit during the latter part of week three and the first part of week four of January.”

Algonquin Citygate quotes tumbled $2.23 to $4.60, and deliveries on Iroquois Waddington dropped 31 cents to $3.52. Gas on Tennessee Zone 6 200 L was seen at $4.45, $2.19 lower.

On Dominion gas for Wednesday delivery fell about 6 cents to $3.13, and at Tetco M-3 gas was quoted at $3.35, down 11 cents. On Transco Zone 6 into New York City gas for next-day delivery slumped 42 cents to $3.47.

Longer term, futures traders have a lower bias. Tom Saal, vice president at INTL FC Stone noted the impact of variable weather forecasts on one of his primary forecasting tools, the Market Profile. “In a market that is a little less chaotic, it’s probably pretty good. The market is very volatile even though we aren’t seeing the 16-cent to 20-cent moves of earlier times.

“Most of the price targets are at lower levels. Even with the coldest weather of the winter, you did not make a new high. That’s kind of a failure, and people are expecting a withdrawal of over 200 Bcf, and that’s kind of healthy, but its not going to push prices towards a new high.

“The bigger question is how much lower are we going. Even though the supply situation is pretty well known, the demand side of the power grid is unknown. How much more gas demand is out there from coal, either through price or retirement of old plants?”

Prior to the open, Saal expected the market to test Monday’s value area at $3.324-3.308 and “eventually” test $3.471-3.441 and $3.244-3.205. He said he was not sure of the order, however.

Commodity Weather Group in its six- to 10-day outlook showed a broader fairway of warm temperatures extending north-south with Illinois on the east and Nevada on the west. It is warmer than Monday’s forecast; however, “[t]he models this morning are showing a bit more debate on a possible secondary cooling into the East in the second half of the six-10 day with the European guidance being a bit stronger than the American models,” said Matt Rogers, president of the firm.

Futures took a hit on updated weather forecasts Monday. “The shift was dramatic enough to command attention, forcing traders to focus on current and future temperatures rather than last week’s cold,” said Tim Evans of Citi Futures Perspective. He also said Monday’s options expiration and the termination of February futures Tuesday could have exacerbated the move lower.

Evans is keeping a sharp eye on storage. “The cold for last week likely translated into a storage withdrawal of 200 Bcf or more for the week ended Jan. 25, a bullish figure compared with the 179 Bcf five-year average. Our model points to a draw of 208 Bcf, and we’ve seen a few other estimates in the 200-220 Bcf range…”

Evans forecast has the year-on-five-year storage surplus easing to 283 Bcf by Feb. 15 from its current 320 Bcf. “Although a disappointment to market bulls, the storage forecast has really only shifted from supportive to neutral, assuming the large draw for last week has been fully discounted into expectations,” he said.

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