Physical gas prices overall on average jumped a whopping 37 cents Monday as traders scrambled to deal with multiple challenges ranging from high power prices, to covering short positions, to below normal temperatures forecast for major eastern and Midwest energy markets. The Northeast was especially strong, with a couple of New England points registering gains north of $4.00. Futures traders were looking at more distant weather events and sold early and sold often. At the close December had fallen 17.1 cents to $3.730 and January was down 16.6 cents to $3.868. January crude oil fell 54 cents to $87.74/bbl.
Northeast points led the charge higher with multi-dollar advances on some New England points starved for supply and traders needing to cover weather-driven requirements. “The high prices reflect mainly temperatures. There are a lot of temperature issues right now,” said an eastern marketer. “It’s not that easy to buy gas over the [long] weekend. There wasn’t a lot available. There was some available Thursday, Friday and Saturday, but Sunday it was pretty tough to find any gas when it was a lot colder. Monday was crazy, and hopefully it’s not as bad as it could be.”
“There is still a lot of stress in the system. People have to buy because power prices are high. There are people short in the market who sold November and sold term and thought they would cover on the day and now they are really paying up. There are a lot of problems right now with people who have shorted the market and weren’t thinking it was going to go this high,” the marketer said.
Power prices throughout the East and Midwest surged. IntercontinentalExchange reported that day ahead locational marginal prices at the Massachusetts Hub of the New England Power Pool jumped $32.58 to $97.20/MWh and the New York Independent System Operator, or NYISO, Zone G next-day peak power shot up $18.00 to $73.00/MWh. Next day real-time power at the Northern Illinois Hub added $8.61 to $38.61/MWh.
Boston was expected to be the victim of a “fast-moving storm” bringing “a period of snow (and rain) to Boston, southeastern Massachusetts and Rhode Island from Tuesday afternoon into Wednesday morning,” said AccuWeather.com meteorologist Alex Sosnowski.
Temperatures along the Eastern Seaboard were expected to be below normal. AccuWeather.com predicted Boston’s Monday high of 47 would slide to 37 Tuesday before recovering to 40 on Wednesday. The seasonal high in Boston this time of year is 48.
New York’s high Monday of 48 was forecast to retreat to 40 on Tuesday before improving slightly to 42 on Wednesday. New York’s normal high is 50. In Philadelphia the high Monday of 50 was anticipated to dive to 39 Tuesday before inching up to 43 on Wednesday. The normal high in Philadelphia is 52.
Quotes at Algonquin Citygate for Tuesday gas skyrocketed $4.77 to average $12.58 and deliveries to Iroquois Waddington gained 37 cents to $6.13. Gas on Tennessee Zone 6 200 L jumped $4.36 to $12.01.
Farther south next-day gas also posted stout gains. Deliveries on Dominion gained 26 cents to average $3.94 and gas on Tetco M-3 rose about 43 cents to $4.37. Gas bound for New York City on Transco Zone 6 added a hefty 98 cents to $4.93.
“An invasion of arctic air Sunday night was expected to send temperatures plummeting to below zero in Grand Forks, ND; the single digits in Fargo, ND, Duluth and Minneapolis, MN, and the teens in Wausau, WI,” and “the frigid air will expand to the south and east Monday into Tuesday, setting the stage for a winter storm to deliver snow from the Ohio Valley to the Northeast,” said AccuWeather.com meteorologist Kristina Pydynowski.
Chicago’s high of 35 Monday was forecast to repeat Tuesday and hit 40 on Wednesday. The normal high in the Windy City this time of year is 43. In Milwaukee the Monday high of 31 was predicted to reach 36 Tuesday and 37 Wednesday, still well below the normal high of 41.
At Chicago Citygate next-day gas was quoted at an average $4.05, up a stout 38 cents; deliveries on Alliance gained 36 cents to $4.08. Tuesday gas on Consumers rose a modest 2 cents to $3.94 and deliveries on Michcon gained 15 cents to $4.02. At Dawn gas for Tuesday was quoted at $4.20, up 4 cents.
A significant change in the near-term weather outlook sent futures reeling before the open, but traders didn’t see a continuation of the price slide. “We traded between $3.72 and $3.76 [December] for most of the day, and with options expiration tomorrow I would think we’ll sit between $3.73 to $3.75,” said a New York floor trader. “I don’t think we’ll see $3.50 or $4 or anything crazy, but by expiration on Wednesday I think we’ll take another shot to the upside, maybe $3.75 to $3.82.”
Weather forecasts call for a pronounced warming trend in the six- to 10-day period, but that is expected to fade by days 11-15. Commodity Weather Group (CWG) in its six- to 10-day outlook shows temperatures as much as 15 degrees above normal from the Texas Panhandle to the Upper Peninsula of Michigan and from northern Arkansas to South Dakota. None of the country is normal or below normal.
“Strong six-10 warming fades in the 11-15. After cool conditions linger in the Midwest and East this week, a strong warm-up is still slated to expand across the nation. The warmth begins late this week in the interior West before expanding eastward across the Midwest and to the East Coast by the mid six-10 day,” said CWG President Matt Rogers.
“Highs across the Midwest and East should push into the 50s and 60s during the period, while Texas sees highs in the 70s and 80s. The strong warmth shows signs of fading by the 11-15, however, as some cooling works back into the Midcontinent, and into the Southeast by the end of the period. The cooling, at least at this point, is not expected to be especially strong but does suggest that the strong warming of the six-10 day does not [settle] in for December as a whole.”
Jim Ritterbusch of Ritterbusch and Associates doesn’t think the forecasts will have a significant impact on storage pulls. “[D]eviations from normal don’t appear severe enough to appreciably stall seasonal withdrawals. However, the market will still need to contend with a potentially bearish number this Thursday that is likely to result from last week’s comparatively mild temperature trends. While an injection is unlikely, the withdrawal is apt to be significantly smaller than the five-year average decline of about 18 Bcf,” he said in a report to clients.
“We are maintaining a trading theme that next month’s expected establishment of a year-over-year deficit will be sensitizing the market to the first significant indication of a sustained cold spell. The market is always much more reactive to unusually cold temperatures early within the heating cycle rather than within the later stages such as February-March. Now that the storage congestion issue has been averted with the virtual passage of the shoulder period, price direction going forward will be largely driven by updates to the weather forecasts.”
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