Cash natural gas prices jumped more than 14 cents on average as weather-driven demand in the Northeast set off price increases that more than matched lower prices on the West Coast resulting from capacity constraints. Midcontinent prices rose and Rockies gains kept pace. December futures gained 6.3 cents to $3.617, and January added 7.0 cents to $3.748. December crude oil jumped a stout $3.06 to $88.71/bbl.

“Prices are a lot higher than we thought they would be this time of year. I would say that [northeast] prices were a little overdone given the weather expected, but people need the gas,” said a northeast marketer. “If prices totally fell off in the day market, I would say people don’t need the gas, but obviously people need the gas. I think prices will stay at these levels for the next couple of days.”

Needing the gas may be an understatement. Algonquin Gas Transmission posted a critical notice of a capacity constraint affecting interruptible transportation as colder temperatures descended upon the Northeast ahead of the arrival of a Nor’easter on Wednesday. It said it was restricting interruptible transportation and some secondary out of path nominations upstream of its Cromwell compressor station, its Stony Point compressor station and its Mendon interconnect with Tennessee.

Although storage inventory remains abundant and production is at high levels, “it’s more of a pipe space issue than storage. In past years LNG would pick up the slack and fill that market, but some facilities don’t have any [LNG] to sell. If we had those cargoes, it would be a lot different, but we don’t so we will have these high prices until we don’t need the gas and prices will fall back down,” the marketer said.

Prices may not be falling down for a while. Wunderground.com forecast that Tuesday’s high in Boston of 44 would rise to 45 on Wednesday and 50 on Thursday. The normal high in Boston at this time of year is 55. In New York Tuesday’s high of 46 was anticipated to slip to 45 Wednesday and reach 48 on Thursday. The seasonal high for New York is 57 at this time of year.

After trading as high as $8.70 prices for Wednesday delivery on Algonquin settled 89 cents higher to average $7.65. Deliveries to Iroquois Waddington added 29 cents to $5.84. On Tennessee Zone 6 200 L Wednesday parcels jumped more than $1 to $7.84.

Farther south increases were more tempered. Wednesday deliveries on Dominion averaged $3.56, up 11 cents, and gas on Tetco M-3 gained 10 cents to $3.78. Gas on Transco Zone 6 bound for New York added 13 cents to $3.98.

On the West Coast maintenance issues forced the removal of transportation capacity and prices fell. SoCal Gas said maintenance on its Aliso Canyon storage facility would remove approximately 300 MMcf/d of capacity for several months. On its website the company posted an operational flow order (OFO) and said maintenance was scheduled out to April 1.

Quotes at Malin for Wednesday volumes were 4 cents higher to average $3.38, and PG&E Citygate prices for Wednesday delivery fell 8 cents to $3.71. At SoCal Citygate next-day gas dropped a penny to $3.73, and at SoCal Border points buyers were able to purchase Wednesday gas 6 cents lower at $3.61. Deliveries to El Paso S Mainline dropped 10 cents to $3.61.

Midcontinent prices firmed. Wednesday gas on NGPL Mid-continent Pool averaged a dime higher at $3.40, and deliveries on Oklahoma Gas Transmission were up a nickle to $3.30. Gas on Panhandle Eastern rose 5 cents to $3.27.

Rockies locations were also higher. At the Cheyenne Hub Wednesday gas rose a dime to average $3.36, and deliveries on CIG added 9 cents to $3.27. At Opal next-day parcels rose a couple of pennies to $3.34, and on Northwest Pipeline Wyoming gas for delivery Wednesday gained 5 cents to $3.27.

Futures traders see higher numbers on the horizon. “We traded between $3.55 and $3.60 almost all day, and the market feels like it wants to make a run at $3.75 at some point during the week,” said a New York floor trader. “I don’t see anything crazy happening, but I don’t see too many people willing to sell this market hard at this point. Traders want to take a look at some of these [weather] numbers over the next couple of weeks.”

Analysts see about another 8 cents left to the downside in the near term. “Until these weather projections shift back to some cool trends, some downside price risk will exist to about the $3.47 area in our view,” said Jim Ritterbusch of Ritterbusch and Associates. “The charts still possess a bearish appearance, a likely catalyst in maintaining some of Friday’s downward momentum from the institutional community. Meanwhile, the market is still attempting to discount the loss of demand that resulted from last week’s East Coast power outages. This will make it more difficult to project this week’s EIA storage figure. Nonetheless, we feel that surprises are more apt to be bearish than bullish.”

Traders see current price levels as attractive hedge opportunities for producers. “We continue to believe the $3.75-4.00 level in the winter strip represents attractive sell levels for producers,” said Mike DeVooght, president of DEVO Capital in a note to clients. “We continue to believe a lot of market participants [were] evening up positions prior to [this] week’s election. We will continue to hold our current positions.”

DeVooght counsels trading accounts and end-users to stand aside, but producers and those with exposure to lower prices should hold short the balance of the winter strip at $3.75-3.95. “Continue to sell any winter months above $3.75-3.95 (light position).”

WSI Corp. in its six- to 10-day forecast said, “Temps may trend back to the warmer side across the eastern half of the nation in the next update. Though the morning forecast preferred a more gradual moderation, some overnight model runs suggest a more aggressive warmup with above-normal temps returning as early as day nine.”

©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.