A few flat to modestly higher points were arrayed against a wave of further declines Wednesday. Northeast citygates led the way lower with drops that exceeded half a dollar in some cases, although elsewhere the softness was considerably milder with numbers down between 2-3 cents and about a quarter.

Despite a screen that moved from negative early on to positive around mid-morning and accompanying late rebounds reported by a Gulf Coast marketer, sources look for the cash market to keep sliding Thursday, albeit at a fairly modest pace. The futures turnaround was attributed to natural gas following the example of the nearby crude oil trading pit, where the January contract traded above $31/bbl for a while after the impact of a strike-related halt in Venezuelan exports finally showed up in a crude inventory report and traders continued to worry that the U.S. is close to going to war against Iraq. Crude eventually retreated to $30.44, which was still good for a daily gain of 34 cents, and heating oil futures rose sharply.

The pocket of moderate strength Thursday was on a few Midcontinent pipes, especially at Northern Natural’s demarcation point and Ventura, which serve a market area in the Upper Midwest that was coping with snow and ice storms.

The Gulf Coast marketer said prices were sagging early but rose in late deals when the Nymex began its move upward, quoting Transco Station 65 in the high $4.80s in his initial trade of the day and in the mid $5.10s near deadline. But despite that mildly bullish signal, he said, “with end-users still trying to sell us gas, I would have to look for more downside to cash prices Thursday.”

“I would expect prices to get a little softer Thursday as we get nearer the weekend, but with Nymex bouncing around the way it is, it’s hard to tell,” commented a western utility buyer. He thinks the EIA storage report in the morning probably will determine the price direction for Thursday’s late deals and Friday’s trading for the weekend.

Salomon Smith Barney analyst Kyle Cooper said his final estimate for the EIA report is a draw of 141-151 Bcf, which would compared to a year-ago volume of only 43 Bcf and a five-year average of 90 Bcf. He continued, “The fundamentals still appear bullish and only a withdrawal of 135 Bcf or less would alter that outlook.”

A Midcontinent trader who didn’t think the Nymex uptick would be able to turn cash around again said he based his outlook “mainly on how hard it is finding markets for January gas. I think prices will have to get softer before rising again.” He was seeing deals for next month developing solidly at substantial discounts to index, quoting Panhandle Eastern at minus 6 cents, Waha at minus 6-7, Northern Natural-demarc at minus 5 and the Chicago citygate at minus 6 cents. In addition, Chicago basis weakened further Wednesday to minus 2 cents, he said.

In a longer-range observation, one source said there’s a high probability of very strong electricity prices in the West next summer (and high gas prices as a corollary). He based his prediction on a report by the National Oceanic and Atmospheric Administration that calls for drought conditions in the Pacific Northwest to persist through next spring, which would mean a severe shortage of hydropower. The source said he doesn’t expect the situation to develop into a crisis like that of 2000-2001, but merely to boost western energy prices.

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