Strange creature, this spot gas market. Prices rise for two days when generally mild weather doesn’t appear to justify it; then when heating load-boosting cold either begins to show up or is in the next-day forecasts, the climb falters Wednesday and all trading locations but one drop. Only two of the declines were by less than double-digit amounts.

Of course, the previous two days of futures declines contributed to Wednesday’s cash weakness.

Northeast citygates were in their accustomed position of being volatility leaders amid overall drops ranging from about a nickel to 80 cents or so. It’s not by any means a new concept, but one source noted that bigger price moves tend to occur on lesser temperature variability in the Northeast because that region has less storage capacity than others such as the Midwest.

The negative signals to cash traders from futures got even stronger Wednesday as Nymex’s February contract plummeted 16.7 cents to $2.774, the lowest point for a prompt-month contract in 28 months (see related story).

Although sub-freezing lows will be fairly scarce in the Northeast outside upper New England, a wintry mix of rain, icing and snow are possible Thursday in several parts of the region north of the Mid-Atlantic, according to The Weather Channel. The forecasting service also looks for cold winds and snow in the Midwest from the Plains through the Great Lakes, with as much as three to five inches of snow likely in Chicago and even more on through Michigan. Snow is not expected in the South, but a cold front is due to chill most residents outside South Texas and the Florida Panhandle. The Rockies mostly can expect lows in the teens and single digits, with somewhat milder conditions predicted for the rest of the West except Western Canada, where most lows will continue to dip well below freezing.

Calling the weather “still an albatross” around the neck of the gas market, Canaccord Genuity analysts said after three consecutive seasons of supportive weather trends, “Mother Nature has clearly turned its back on the gas complex this winter. Withdrawal season to date, heating degree days have averaged just 139 per week compared to 173 last year and the 10-year average of 154 per week.”

Unless a lot of supply gets shut in soon, the market is going to face “impossible storage comparisons” through the rest of withdrawal season, a Rockies producer said. He noted that Henry Hub pricing got as low as $1.83 in September 2009, adding, “Don’t think we can’t do it again, especially since that was a shoulder month” and prices are headed downward now in a winter month.

It’s not so much the gas rig count exacerbating the current situation, the producer said; the huge backlog of wells awaiting completion is a much bigger factor. He said it’s possible for producers in the Rockies to be cash-flow positive at $3 pricing, but they can’t get away with it in such dry-gas areas as the Haynesville Shale. The Rockies now has a surplus of takeaway capacity that had been lacking a few years earlier, he said, but right now it mainly means producers there can take a beating on low prices like the rest of the market.

Credit Suisse analysts Stefan Revielle and Jan Stuart said they look for a report of 96 Bcf being pulled from storage during the week ending Jan. 6. Kyle Cooper of IAF Advisors anticipates an 89 Bcf draw. And Citi Futures Perspective’s Tim Evans weighs in near the low end of estimates with a projection of a 72 Bcf withdrawal, to be followed by pulls of 70 Bcf, 141 Bcf and 126 Bcf for the weeks ending Jan. 13, Jan. 20 and Jan. 27, respectively.

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