After ignoring forecasts of the coming winter storm back on Monday, traders of physical natural gas were forced to face the music on Wednesday as the same system that brought a white Christmas to portions of Texas was still depositing a wintry mix of sleet and snow from Oklahoma through the Mid-Atlantic and Northeast.
Rebounding from across-the-board drops on Monday for Tuesday and Wednesday delivery, cash points on Wednesday for Thursday delivery moved higher, with the largest increases being recorded in the Northeast and the Midcontinent. The January natural gas futures contract, which expires Thursday, also changed it’s tune from Monday by adding 4.6 cents on Wednesday to close at $3.392.
Fittingly, the Algonquin Citygate, which recorded the largest national decline on Monday with an 82-cent slide, recorded the largest increase Wednesday by adding 97 cents to average $5.75. Other big gainers in the Northeast on Wednesday included Iroquois Zone 2 (up 54 cents to $4.81) and Tennessee Zone 6 Line 200 (up 28 cents to $4.92).
The Midcontinent, also affected by the winter storm and dipping temperatures, saw some strong upticks, with a number of points adding more than a dime. NGPL Midcontinent added 12 cents to $3.32, while Panhandle Eastern jumped 14 cents to average $3.30.
“Prices were pretty strong today, which really isn’t a surprise considering the winter chill that is gripping much of the country,” an East Coast broker told NGI. “However, if we’re going to string more than a few up days together, this cold is going to have to linger and stick around for a while.”
Portions of the northern United States could be in for some sustained cold in January if a new forecast from Andover, MA-based Weather Services International hits the target (see related story). The firm believes the next three months will average colder than normal across much of the northern United States, with arctic air expected to be a “frequent guest in [the] largest gas-demand population centers.”
As far as heating demand goes, Energy Securities Analysis Inc. Senior Analyst Chris Kostas said cold in the North should at least partially offset what is expected to be warmer-than-normal temperatures for much of the rest of the country. “While natural gas prices are likely to firm during the coldest periods, robust supplies (i.e., high inventory levels and strong Marcellus production) should limit price strength in both magnitude and duration,” he said.
“New England and portions of northern New York may experience very sharp price spikes in January due to pipeline congestion on Tennessee Gas and Algonquin pipelines,” Kostas added. “This congestion is due to the secular decline of Canadian imports and increased dependency of gas for heating and power. Indications are that the futures market has priced-in these effects, with gas basis prices trading below the five-year average in the Mid-Atlantic (i.e., Tetco M3), but well above the five-year average in New England (i.e., Algonquin Citygates).”
Natural gas traders will have to wait an extra day for their storage fix, thanks to the Christmas holiday on Tuesday. The Energy Information Administration will be releasing their inventory report for the week ending Dec. 21 on Friday at 10:30 a.m. EST.
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