Physical gas prices overall averaged a healthy gain of 28 cents Monday, but when volatile East and Northeast points are factored out, the national gain was a more modest 4 cents. Points serving the New York and Boston areas finished the day over $15, but the benchmark Henry Hub was just 2 cents higher at just over $3.40. Futures prices slumped on light volume as medium term weather forecasts moderated. At the close February was down 11.8 cents to $3.351 and March had sunk 11.7 cents to $3.365. February crude oil gained $1.02 to $91.82/bbl.

Midwest utilities have used the recent cold to draw gas from storage. “We are burning about 200,000 Dt/d and that helps us remove some gas from storage,” said a Midwest utility buyer. He added that he expected more demand given the weather. “Northern has some restrictions, so you can’t get too crazy,” he said.

“We are supposed to be down in single digits for the next 3 to 4 nights so demand should stay strong. Even with the Christmas holiday we pulled a lot of gas. It was down to minus 1 degree and it was a stronger load than normal.

“We probably won’t go to the spot market much and will pull as much as possible from storage. With November and the first half of December being so warm, we are kind of behind the curve getting our storage out,” he said.

The buyer noted overall stronger prices. “Last week on Demarcation [spot] prices were about $3.30, and now they are up to the $3.50s.”

Quotes on Alliance rose 3 cents to average $3.56 and at Chicago Citygate Tuesday and Wednesday deliveries averaged $3.58, about 9 cents higher. Farther east changes were more modest. Deliveries on Consumers added two pennies to $3.59 and on Michcon gas slipped 1 cent to $3.55. At Ventura on Northern Natural Gas buyers had to pay 9 cents more at $3.57 and at Demarcation Tuesday and Wednesday parcels gained 9 cents as well to $3.57.

High volatility was in play at eastern and Northeast points. The greatest gain was put up by Algonquin Citygate, which rose $4.77 to $15.27. At Iroquois Waddington Tuesday and Wednesday gas fell 9 cents to $5.62 and on Tennessee Zone 6 200 L parcels for Tuesday and Wednesday added 94 cents to $11.73.

Gas into Dominion fell a dime to $3.27 and deliveries into Tetco M-3 were off 47 cents to $4.08.

Forecasters are calling for bone-rattling cold to slide into the region at the first of the new year. “There is the potential for the coldest air in a couple of years for the Northeast and perhaps the Midwest during the first week of January 2013,” said Alex Sosnowski, AccuWeather.com meteorologist.

“The cold push from the Arctic is coming in stages during the first seven days or so of 2013. During next weekend the flow could deliver lower temperatures than all of the winter of 2011-12 and perhaps close to that of 2010-11 for part of southeastern Canada and New England. Highs could be in the single digits for a one to several-day stretch from northern upstate New York to northern New England with highs in the teens to lower 20s farther south.”

In spite of the day’s futures losses, traders see the cold weather pushing prices higher. “I could see this market at $3.60 to $3.70,” said a New York floor trader.

He added that trading volume was very light, and thus the day’s losses were somewhat misleading in their depiction of the market’s overall balance. “We only did about 54,000 contracts between the February and March, which is nothing. It was very thin.” he said.

Medium term weather forecasts turned warmer overnight and futures tumbled. MDA Weather Services in its six- to 10-day outlook shows a broad ridge of above normal temperatures extending from Minnesota to South Carolina and Pennsylvania to Colorado. “Within this time frame comes a gradual warming trend, working its way from the Northern Plains at the onset through the East and South by late period. Some of the change to the composite map comes from progression, while some comes from actual warmer changes to the forecast during the second half.”

It added that “Included in the warmth should be much aboves late in the [Midwest]. High pressure at the surface should keep the Great Basin seasonally cool, though upper level ridging may try to battle back. Confidence is moderate to high in the general warming trend, but a little lower yet in the exact details.

In spite of the bearish weather outlook, analysts don’t see it as strong enough to force another round of lower prices. “This market remains confined to price parameters that have seen limited price ranges during the past 3 weeks. While weekend updates to the short term 1-2 week temperature views look a bit more bearish than indicated on Friday, they don’t appear sufficient to force values appreciably lower,” said Jim Ritterbusch of Ritterbusch and Associates in a morning note to clients.

Ritterbusch also notes that funds and managed accounts have reestablished interest in the short side of the market and “As this short position has been rebuilt, we feel that the odds of nearby futures establishing fresh lows have been considerably reduced since bearish holders will likely be looking to accept profits with a couple of months remaining in the heavy usage cycle.”

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