The physical and futures markets elected to part company Thursday with a majority of the cash market firming and futures heading south. While most cash points upticked by less than a dime for a second straight day, more than a handful of Northeast averages once again dropped by between 20 cents to nearly a half dollar.

The higher cash quotes in most regions were thought to be the result of end-of-month balancing and strong electrical utility demand, but futures took one look at what on paper looked to be supportive government inventory report and scurried lower with traders looking at a repeat of growing storage surpluses. At the close of futures trading February natural gas had fallen 12.4 cents to $2.605 and March had skidded 11.5 cents to $2.700. March crude oil was higher by 30 cents to $99.70.

A Southwest utility manager said he thought the strength in the daily market was due to “market spark spreads allowing us to burn natural gas. Power prices are remaining high enough to allow us to burn gas for our generators and still be competitive in the marketplace.

“People who have to balance out their positions by the end of the month with the pipelines have to buy gas if they are short on their imbalance. They will buy the gas at month-end. You often see that at month end where the day-ahead market goes one way or the other for three or four days that may not make economic sense, given what the national market is doing.

“Local shippers on El Paso or Transwestern have to balance their pipeline positions by month-end, so they have been shorting the market all month long and have to buy gas to offset their imbalance by month end,” he said. “Everybody is shorting the market these days, given the bearish sentiment on natural gas.”

The utility manager also said he didn’t expect to see firm bidweek quotes and thought February indexes would struggle to stay above January.

Overall, prices were about five to seven cents higher, but West Coast points recorded the smallest gains. Ruby Malin and PG&E citygate were flat to a penny higher, and SoCal citygate was able to add about two cents.

Rocky Mountain points also gained less than a dime. CIG was higher by close to 6 cents, and gas at the Opal plant tailgate was up by nearly 8 cents. Wyoming deliveries to Northwest Pipeline posted approximately a nine-cent gain.

Northeast points were a notable exception to the overall firm quotes as weather forecasts called for much-warmer-than-normal temperatures. Algonquin citygate gas plunged more than 40 cents, and deliveries to Iroquois sank more than 40 cents as well. Gas into Transco Zone 6 in New York shed nearly 20 cents.

Generally blustery and winter-like conditions were forecast for Boston Friday, but temperatures were expected to be far above seasonal norms. The National Weather Service in southeast Massachusetts said, “Generally low pressure will push across the region tonight [Thursday] into tomorrow bringing rain across the coastal regions…and mixed precipitation to the interior. Another weak high should bring seasonable weather during Saturday with another low moving along the coast late this weekend. Dry and somewhat seasonable weather should return early next week.”

Forecaster Wunderground.com said the high in Boston of 39 Thursday would rise to 50 Friday, well above the normal high this time of year of 36.

The primary futures price driver was the 10:30 a.m. EST Thursday release of weekly inventory figures by the Energy Information Administration. Traders had been looking for a withdrawal close to seasonal norms, but the actual figure came in at a somewhat bullish 192 Bcf. Prices, nonetheless, slumped.

“Once the number came out it didn’t do anything to the upside at all. It just hovered where it was,” said a New York floor trader.

Analysts saw the hefty build overshadowed by the near-term weather outlook. “The 192 Bcf withdrawal was above the consensus expectations and also cleared the five-year average of 173 Bcf, creating the first weekly downtick in the year-on-five-year storage surplus since August,” said Tim Evans of Citi Futures Perspective. “While a bit of a bullish surprise, we note this could reflect local distribution companies taking advantage of a brief period of cold to push inventory out the door rather than the start of a new trend. Warmer temperatures going forward should reassert the prior bearish trend in our view.”

Over the last four sessions February futures had advanced more than 40 cents, and there was “a lot of short-covering and new longs with Chesapeake and Conoco cutting the supply a little bit. There was a correction [lower] Thursday off the earlier correction [higher], the New York trader said. “I think $2.30 is rock-bottom support, but traders will keep it off that. I’m thinking it won’t get worse that $2.40 to $2.43 and then trade between the mid $2.40s and mid $2.70s for a while.”

The day’s inventory report was unique in that it was the first report to show a greater decline or smaller build than the seasonal averages since August. Traders were anticipating a pull not too far removed from the 184 Bcf withdrawal of the corresponding period last year and the 173 Bcf five-year average.

Ritterbusch and Associates was looking for a draw of 179 Bcf, and a survey by Energy Metro Desk came up with a 174 Bcf reduction. Industry consultant Bentek Energy predicted a withdrawal of 183 Bcf, and a Reuters survey of 24 analysts and traders revealed an average 168 Bcf with a wide range from 168 Bcf to 191 Bcf.

Inventories now stand at 3,098 Bcf and are 531 Bcf higher than last year at this time and 547 Bcf above the five-year average of 2,551 Bcf. In the East Region 122 Bcf was withdrawn, and in the West Region 27 Bcf was pulled. Stocks in the Producing Region fell 43 Bcf.

How much longer the market can absorb an ever-increasing storage surplus remains to be seen, but if near-term weather forecasts are correct, temperatures well above normal are likely to continue the trend. MDA Information Systems in its six- to 10-day outlook forecasts above- to much-above-normal temperatures for the entire U.S. with the exception of a portion of the West bounded by Washington, northwest New Mexico and southern California along with south Florida.

“Changes were generally minimal [Thursday] and focused only on the details rather than any major shifts in the pattern,” the forecaster said. “Within this time frame it appears the +WPO [Western Pacific Oscillation] signal should be firmly in place, which combined with a lack of any notable high-latitude blocking should provide more opportunities for warmth. Areas from the West to South should see some variability, but the warm portions are still likely to greatly outweigh the colder portions of the outlook. Likewise, the Northeast is likely to fluctuate some, but mostly in the various above normal categories.”

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