Cash points across the United States and Canada continued to surge higher Tuesday backed by a significant cold-front surge that began in the West and is making its way across the Midwest and Upper Great Lakes.
Averages at most pricing points increased by 20 to 40 cents as demand for gas was sparked by heating load in a number of regions. The cold snap nearly two weeks ahead of the official start to winter on Dec. 21 also brought cash prices much more in line with futures values. The Henry Hub average on Tuesday gained 32 cents to $5.10 and the January delivery futures contract finished the regular trading session at $5.114, up 14.3 cents from Monday’s close (see related story).
The overwhelming cash strength even affected regions that were not experiencing bone-chilling cold. “We were doing a little bit of business on Tuesday and were surprised by just how strong the overall market was,” a Midcontinent trader told NGI. “It’s tough out there right now. We really did not think that prices would escalate to this level.”
The trader noted that the season’s first real cold snap was behind the price firmness in every region. “It’s chilly out here in Oklahoma with temperatures in the high 30s to low 40s, but this is pretty seasonal for these parts,” he said. “I think prices in the Midcontinent are being buoyed a bit by the storms and the real cold in other regions. It was pretty brutal in Houston last week. There is a lot of gas demand in Texas and a few other parts of the country and it looks like a lot of the supply from Oklahoma is going to some of the markets in need right now.”
While noting that some regions were dealing with “real cold,” the trader said he believes the market’s surge higher might be overdoing it a bit. “There is a lot of gas in storage and a lot of supply. Fundamentally, I’m shocked to see these cash prices above the Nymex when we have all this gas around. With this being the first real stretch of cold in a number of high-gas demand regions, I think a lot of what we are seeing right now is merely market hype.”
That said, the current cold pattern plaguing much of the country is likely to stick around for a while according to forecasters. “Winter is out of the gate already and shows no signs of letting up. Currently, extremely cold air covers much of the West and Great Plains, and the Upper Midwest and northern Great Lakes will be getting a brutal blizzard Tuesday night into Wednesday,” said John Kocet, senior meteorologist with AccuWeather.com.
Kocet said the cold system is likely to “remain well entrenched across a large portion of the United States” into next week, which will likely combine with “a very active southern storm track” to create “quite a bit of snowy weather.”
Taking an early look at Thursday morning’s Energy Information Administration natural gas storage report for the week ending Dec. 4, Stephen Smith of Stephen Smith Energy Associates on Tuesday revised his early estimate from a 31 Bcf draw to a 38 Bcf draw.
Citi Futures perspective analyst Tim Evans said natural gas prices going forward have been buoyed by updates to the short-term weather forecasts that are cooler than they were on Monday. “Interestingly enough, although temperatures have turned cooler than normal and have supported a recovery in price, the resulting temperature pattern actually matches quite closely with the five-year average temperatures,” Evans said. “As a result we may not see all that much of a drawdown in the 487 Bcf year-on-five-year average storage surplus at the end of the current cycle.”
Evans said his early expectation is for a 60 Bcf withdrawal, which will be compared to last year’s 66 Bcf draw for the similar week and the five-year average pull of 90 Bcf.
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