Mixed cash market action set the tone for the day Monday with points declining in the gulf Coast and Midcontinent regions while Northeast, Rockies and West Coast points managed moderate gains. The expiring March futures finished on a soft note as the technical environment continued to deteriorate. At the close March had settled at $2.446, down 10.4 cents and April shed 9.2 cents to $2.603. April crude oil dropped $1.21 to $108.56/bbl.

Out West the loss of nuclear generating capacity was taken in stride but some points firmed. According to the NGI NRC Power Reactor Status Report the Palo Verde 1 nuclear plant located about 50 miles west of Phoenix dropped to 40% of its operating capacity from 1,243 MW to 497 MW.

“It was expected. Just prior to the weekend there was a condenser problem and mild weather made gas-buying easy,” said an Arizona analyst. He added that the start of bidweek had little impact on their trading activities, “since we financially hedge most of our gas and then will roll into a physical index. We will buy at index about a week before bidweek and everything will settle out against our hedges.”

The analyst said he thought the market was at “a false bottom for now and then it will drop out. We’ll see what happens over the summer.”

Quotes spanning Arizona, Nevada and California mostly stayed either flat or gained between 6 cents and a dime. El Paso S. Mainline, SoCal Citygate and SoCal Border all rose close to 10 cents, but Malin and PG&E Citygate traded flat.

Far removed from Southern California, pricing points in the Northeast also enjoyed a respite from an otherwise soft market. Deliveries into Algonquin Citygate surged nearly 15 cents and parcels into Iroquois Waddington and Dracut gained more than a nickel. Next-day gas into Tennessee Zone 6 200 L added just under a dime.

“It seems like everything is kind of stuck in the same range,” said an eastern marketer.

“A couple of weeks ago you could sense which way something was going to break, but recently it seems if you want to buy something you have to lift the offer, and if you want to sell something you have to hit the bid. There hasn’t been a lot of activity for the last couple of weeks on the points we follow. I don’t know if it is because there hasn’t been as much weather in the last few weeks or if people are waiting for this bidweek to end. Term hasn’t been trading much for people are trying to close out their monthly index positions,” he said.

Temperatures were forecast to turn cooler in Boston as the week progressed. Forecaster Wunderground.com predicted Monday’s high of 50 would ease to 46 on Tuesday, 41 on Wednesday with a chance of snow, and 37 on Thursday. The normal high in Boston this time of year is 41.

Gulf points were weaker. Henry and the Houston Ship Channel were quoted down about a nickel and ANR SE and Texas Eastern E LA were seen off about a nickel as well.

The expiration of the March contract did not go well for the bulls as a breach of what was considered technical support at $2.50 suggested to traders that still lower prices were on the horizon. “I think we’ll grind lower for the rest of the week, and I don’t look for anything too crazy to happen,” said a New York floor trader.

Market technicians suggest further weakness. “The more time that passes below $2.880 the more compelling the case that the rebound from $2.231 is a bear market correction in a continuing downtrend. Bulls need a rally. Further congestion weakens their case,” said Walter Zimmermann, vice president at United-ICAP in a note to clients.

According to the most recent government figures, directional traders gave a slight edge to the long side of the market. The Commodity Futures Trading Commission, in its Commitments of Traders Report for Feb. 21, reported that traders at the IntercontinentalExchange favored long positions and traders at the New York Mercantile Exchange opted for greater short positions.

At the IntercontinentalExchange managed money increased long futures and options (2,500 MMBtu per contract) by 73,995 to 617,009 and short holdings rose by 31,748 to 336,675. At the New York Mercantile Exchange long futures and options (10,000 MMBtu per contract) fell by 6,.671 to 215,877 but short positions increased 1,799 to 286,053. When adjustments are made for contract size, long positions at both exchanges rose 11,827 and short positions increased by 9,736. For the four trading days ended Feb.21 March futures rose 9.4 cents to $2.626.

Weather bulls may be able to take some comfort in that near-term weather forecasts call for more seasonal temperatures over much of the country rather than the pervasive above-normal predictions that have emboldened the bears. In its six- to 10-day outlook, WSI Corp. of Andover, MA, shows warmer temperature readings confined to the Northeast. “Above-normal temperatures are forecast over the Great Lakes states and northeastern U.S. Anomalies as warm as 5 degrees above normal are anticipated in the warmest locations. More seasonable readings are expected to encompass most of the rest of the country.

“Temperatures may trend colder over the central U.S. than currently forecast. While all models depict a progressive pattern over North America next week, the European ensemble model depicts deeper troughing over the middle of the country and is colder than rest of the medium-range models over the central U.S. in the late six- to 10- and early 11- to 15-day period.”

Analysts see a recent shift in the supply-demand balance and suggest heavy fuel switching to natural gas for power generation may tip the market closer to normal. “Recent weather-adjusted gas storage data suggest the gas market is slightly undersupplied compared to 3 Bcf/d oversupplied for much of the winter,” said David Pursell of Tudor Pickering Holt in Houston. “We attribute much of the improvement to increased power demand due to a drastic fall in gas prices to $2.50/Mcf as this winter has been about 10% warmer than normal. As long as gas prices stay low (below $3/Mcf), the trend of increased power demand and falling rig count should continue and could prevent a storage overfill in October 2012.

“Over the past five weeks the weather-adjusted storage data has progressively improved from 3 Bcf/d oversupplied to nearly 2 Bcf/d undersupplied, a massive 5 Bcf/d swing. This is most likely the impact of natural gas prices falling from the mid-$3s/Mcf to the mid-$2s/Mcf creating significant incremental natgas demand in the power sector (a big negative coal impact). We will also consider that some of the swing/improvement could be due to reported production shut-ins and moderating production growth due to falling rig count…but rig count-induced production response is not this rapid, so we believe the lion’s share of the recent storage improvement is due to increased power demand.”

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