Traders braced for what promised to be extra-cold weather developing in most of the East over the weekend by sending prices higher at all points Friday. As often happens, Northeast citygates led all advances, which ranged from a dime to more than $1.30. The smallest increases were concentrated in the West, where relatively moderate conditions will prevail in most of the region outside the Pacific Northwest until about midweek.

Friday’s only triple-digit gain was at Transco Zone 6-New York City, but delivered gas at other Northeast points was up about 75 cents or more.

This week’s weather pattern appears to be shaping up as similar to the one last week: opening with frigid conditions permeating the eastern U.S. and Canada, followed by a modest warm-up period in the middle, and closing out with even colder temperatures going into the Christmas weekend.

OFOs or similar measures were continuing on several pipes Friday, while a couple of new ones were being introduced (see Transportation Notes).

Futures traders obviously didn’t want to leave for the weekend in short positions with severe weather conditions in store; the natural gas screen was up 45.7 cents. The petroleum products at Nymex also skyrocketed, with crude oil for January delivery rising more than $2 to $46.28/bbl. Analysts cited the approaching cold weather in the East and threats from a recently surfaced Osama bin Laden tape encouraging attacks against Middle East oil infrastructure as catalysts for the oil spikes.

Prices very likely could be even stronger late this week, said a Houston-based marketer reporting talk of temperatures in the 20s in his city over the Christmas weekend. He noted that the Chicago citygate was stronger than the screen for the first half hour of futures trading, but then was unable to keep pace with rising futures. Forecasts call for highs in the teens early this week in Chicago prior to some midweek moderation, he said, but then it will be getting colder again towards the weekend.

“Sunday is when the really bad cold is going to hit us,” said a Northeast utility buyer. Actually the market was quiet for him in spite of soaring regional quotes, he added. His company has term gas “turned on for the next couple of months” and plenty of storage on which to draw, so he anticipates little if any new swing purchases for quite a while. But because some of its term contracts are based on daily indexes, the utility feels a limited effect from times when prices spike like they did Friday.

Chances for a white Christmas were looking good for most areas that normally experience snow during the winter. In Thursday’s update of its six- to 10-day forecast covering the Dec. 22-26 period, the National Weather Service predicted below normal temperatures for nearly all of the U.S. It expects no above normal readings. The areas where normal conditions are expected are the southern tip of Texas, northwest Washington state and the East Coast states — in their entirety from Maine through New York (also including Delaware and Maryland), and in their coastal ends from Pennsylvania through Florida.

The cycle of polar waves coming into the U.S. shows no end in sight at this point, according to an advisory from the Weather 2000 consulting firm. The third consecutive December featuring cold and snow “may be just getting going,” it said. “While 2002-2003 still remains the best comparison season, with likely volatility [and] ferocity similar to 2003-2004, the U.S. will continue to witness some frigid December temperatures, not seen since record-setting 2000. The most impressive aspects of this pattern are the southern penetration of the cold (sub-freezing temperatures reaching the Rio Grande Valley and Florida), and the massive extent of the polar air masses (enveloping almost the entire U.S.).”

The 61 Bcf storage withdrawal reported for the week ended Dec. 10 left inventory levels nearly 400 Bcf above the five-year average, noted Lehman Brothers analyst Thomas Driscoll. “A ‘perfect storm’ seems to be driving the growing gap versus the five-year average as relatively weaker weather-induced demand (season-to-date weather — since October 29, 2004 — has been about 8% warmer than the five-year average based on gas-weighted home heating degree days), coupled with excess gas available — the five-week average injection rate (after adjusting for weather-related demand) is about 2.0 [Bcf/d] above the five-year average and has remained on average about 1.0-2.5 [Bcf/d] oversupplied since early July 2004. Demand needs to rise to allow storage to fall toward normal seasonal levels as winter progresses. Either colder-than-normal winter weather or a positive (perhaps price-induced) demand response will be needed. We believe the risk to gas prices remains to the downside.”

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