Physical gas prices overall on average rose a nickel Tuesday, continuing Monday’s stout advance. However, while a scattering of Gulf Coast points managed gains, hefty losses were noted in the Midwest, Great Lakes and in more than a handful of Northeast locations. Options strategies seemed to be in play for the December contracts, and at the close December futures had risen 3.9 cents to $3.769 and January was higher by 2.4 cents to $3.892. January crude oil fell 56 cents to $87.18/bbl.

“We have been buying lots of gas on both Consumers and Michcon,” said a Michigan marketer. He said his company had to pay $3.97 and $3.96 for Wednesday gas on Consumers and Michcon was at $4. “We were thinking when we came in Monday the market was really down, and we were thinking we were going to look at better prices than we actually did.

“We bought our gas based on settlement prices plus basis and the basis on Consumers was 22 cents to 25 cents and on Michcon it was 29 cents. The basis has strengthened. Last year we paid 20 cents on Consumers and 23 cents on Michcon.”

The marketer said that although spot prices on Michcon and Consumers were well above the November index in the $3.70 area, they had been able until recently to keep their purchasers close to index.

Temperatures in the Great Lakes and Midwest were expected to rise to moderately above normal over the next few days. MDA Information Systems in its one- to five-day outlook showed a ridge of above- to much above-normal temperatures west and south of an arc extending from Washington to Illinois to Texas. Below-normal readings were expected east of a line running generally from Pennsylvania to North Carolina.

Forecaster predicted Chicago’s high Tuesday of 34 would increase to 40 by Wednesday and 46 Thursday. The normal high in Chicago is 43 at this time of year. Omaha’s high Tuesday of 43 was predicted to reach 46 Wednesday and 50 on Thursday. The seasonal high in Omaha also is 43.

In the Great Lakes Wednesday gas was mixed. At the Chicago Citygate gas eased 5 cents to average $4.00, and deliveries on Alliance slipped 9 cents to $3.99. On Michcon gas for Wednesday delivery added a penny to $4.03, and gas on Consumers was flat at $3.94. Parcels at Dawn fell 2 cents to $4.18.

Traders in the Northeast on Tuesday were dealing with the effects of cold weather. Cold temperatures in the Northeast have prompted constraints on Spectra Energy’s Algonquin Gas Transmission and Maritimes & Northeast (M&N) Pipeline, according to customer notices on the pipelines’ bulletin boards (see related story). For gas day Wednesday Algonquin restricted interruptible and portions of secondary out of path nominations exceeding entitlements at several points due to nominations exceeding capacity.

Tuesday for Wednesday delivery saw Algonquin Citygate drop 59 cents to $11.99.

Farther west prices for next-day deliveries were also mixed. At Demarcation prompt gas was quoted 12 cents lower at an average $3.93, and at Northern Natural Gas Ventura Wednesday gas was at $3.92, down about 11 cents. On ANR SW next-day packages were seen at $3.71, up 2 cents and on Panhandle Eastern gas was flat at $3.65.

Next-day power prices throughout the region were generally mixed. IntercontinentalExchange reported next-day real-time peak power at the Northern Illinois Hub fell $1.11 to $37.50/MWh, and real time peak deliveries to the PJM Western Hub rose $2.71 to $48.24/MWh.

Gulf prices varied within a few pennies of unchanged. Deliveries on ANR SE were a penny higher at $3.74; Columbia Gulf Mainline was quoted at $3.76, up a penny, and the Henry Hub came in at $3.77, 2 cents higher. Tennessee 500 L gained 4 cents to $3.81, but Texas Eastern E LA eased a couple of pennies to $3.72. Transco Zone 3 was up about a penny at $3.80.

Futures traders saw a difficult market. “It was a tough market to call. It was options expiration, and I think traders wanted to peg the market above $3.75, a big options strike. The market was trading for most of the day between $3.73 and $3.75, and then it rallied toward the latter part,” a New York floor trader said.

He added that $3.70 was a good support level, but “being that it was options expiration, I think traders wanted to run the market above $3.75 to make the $3.75 call options worth something.”

Trading volume was light. December traded 54,000, and January traded 79,000, according to the trader.

Addison Armstrong, director of market research at Tradition Energy, sees “the December contract consolidat[ing] near levels reached after [Monday’s] steep sell-off, while traders balance forecasts for moderate weather and near-record storage levels against this winter’s upcoming heating needs.”

Weather forecasts have changed little, and MDA Information Systems in its one- to five-day outlook shows cooler-than-normal temperatures in the Northeast and a warm West. The six- to 10-day forecast, however, shows significantly above-normal temperatures. “Impressive early December warmth [six- to 10-day period] remains on track under a strong ridge and influence from the GOA [Gulf of Alaska] trough. Much of the strongest warmth trended warmer [Tuesday] with most of the adjustments to the overnight lows under the strong southerly flow.”

Tom Saal, vice president of INTL Hencorp in Miami, in his work with Market Profile is looking for the December contract to test Monday’s value area at $3.759 to $3.731. His calculations show that Monday’s sharp decline represented a 3-2-1 pattern downward, indicative of long liquidation. He anticipates that will be followed by a 3-2-1 upward pattern prior to Wednesday’s contract expiration, which would indicate short-covering.

Saal also identifies a second value area at $3.910-3.884 but cautions that “sometimes value areas near tops (or bottoms) do not get tested.”

©Copyright 2012Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.