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Physical Gas Outruns Futures Lower; November Off 3 Cents

Gas buyers for weekend and Monday packages were not persuaded to commit to three-day deals on Friday in spite of a combination of active weather, temperatures below seasonal norms and a firm power market.

Only a couple of points made it into the black, and losses of a nickel to a dime were common with the Mid-Atlantic and the Northeast enduring double-digit declines. Appalachian locations and the Marcellus lost about a dime, and producing regions were lower by over a nickel. Futures settled lower on light volume and came within a hair of long-term technical support. At the close, November was off 3.0 cents to $3.766 and December had fallen 2.2 cents to $3.863. November crude oil gained 5 cents to $82.75/bbl.

The midsection of the country was expected to see a number of weather systems march through, and with a plethora of communications devices available, traders can respond to weather changes quickly and make spot purchases when necessary.

"An area of low pressure will affect the Northeast on Friday, while a separate system will drift over the upper Midwest," said Kari Strenfel, Wunderground.com meteorologist. "A strong low-pressure system will continue to lift northeastward over southeast Canada. This system will usher moderate to heavy rain across portions of New England on Friday. To the south, a high-pressure system will develop over the Gulf Coast, bringing warm, dry conditions to the Deep South, the Southeast, the Tennessee Valley and the Mid-Atlantic.

"Meanwhile, a separate area of low pressure will shift eastward over the upper Midwest. As this system moves over the region, it will push showers across the upper Mississippi Valley, the Great Lakes and the northern tier of the Ohio Valley. Conditions will remain mostly clear across the Plains. To the west, a weak area of low pressure will bring a slight chance of showers to the desert Southwest, including parts of eastern Arizona and western New Mexico.

"Another round of rain will develop over the northwestern corner of the country as a cold front approaches the West Coast," she said. "Rainy weather will spread across northern California, Oregon, Washington and the upper Intermountain West. High-elevation snow showers will be possible during Friday evening over the northern Rockies. The Great Basin will stay warm and dry on Friday."

Those low-pressure systems were enough to send temperatures in major energy markets lower. AccuWeather.com forecast that Chicago's high of 59 degrees on Friday would drop to 50 on Saturday before climbing back to 57 Monday. The normal high in the Windy City is 62. Pittsburgh's 68 high on Friday was anticipated to plunge to 51 and rain Saturday before reaching 54 Monday. The normal high in Steel Town this time of year is 62. New York City's Friday peak of 71 was seen sliding to 68 Saturday and dropping again to 59 Monday. The normal high in New York City is 63.

Power loads showed a mixed pattern. The New York Independent System Operator predicted Friday's peak power load of 18,868 MW would ease to 18,717 MW Monday, but the PJM Interconnection forecast the Friday's peak load of 30,969 MW would rise to 31,877 MW by Monday.

IntercontinentalExchange reported that peak power Monday at the ISO New England's Massachusetts Hub rose $3.72 to $48.75/MWh and peak power at the PJM West terminal gained $4.59 to $43.21/MWh.

Producing regions were full participants in the broad-based decline. At the Henry Hub, weekend and Monday gas retreated 7 cents to $3.72, and gas on Tennessee 500 L shed 6 cents to $3.69. On Transco Zone 3, packages changed hands a nickel lower at $3.67, and at Katy, weekend and Monday parcels were seen 8 cents lower at $3.62. Gas on Columbia Gulf Mainline fell 5 cents to $3.63.

At the Algonquin Citygates, gas tumbled 68 cents to $2.84, and on Iroquois Waddington gas came in 9 cents lower at $3.85. On Tennessee Zone 6 200 L parcels fell 61 cents to $2.90.

Gas on its way to New York City via Transco Zone 6 fell 25 cents to $1.81, and weekend and Monday gas on Tetco M-3 was off 20 cents to $1.87.

If forecasts from Appalachian producers are any indication, sustained production growth is likely for years to come. According to industry consultant Genscape, "Antero Resources -- one of the largest producers in Appalachia -- said in a Q3 operations update that it expects Marcellus and Utica production will continue growing due to strong hedges, advances in drilling technology, a growing inventory of wells, high IP rates, and increased market accessibility [see Shale DailyOct. 16]. Antero noted its Q3 production exceeded 1 Bcf/d (gas equivalent) for the first time, representing a 21% increase from its Q2 output, and 91% greater than Q3 2013. The company expects production through 2016 to grow by 50%, with as much as 1.07 Bcf/d of 2018 volumes hedged, with hedged prices reaching as much as $4.79 (2015 volumes)."

Genscape reported that, "The production growth is being facilitated by high IP rates (as much as 56 MMcf/d in the Utica) and use of 'shorter stage-length' completions (SSL), which enhance production by 20-30% relative to non-SSL wells."

Those hedges over $4 are looking pretty good. Weekend and Monday gas on Millennium fell 7 cents to $1.88, and gas on Transco Leidy was seen 15 cents lower at $1.85. On Tennessee Zone 4, Marcellus weekend and Monday packages dropped 9 cents to $1.80 and on Dominion South gas fell 9 cents to $1.91.

Top traders are cautiously long the market with a tight stop. "Although our storage expectation was far off the mark given [Thursday's] 94 Bcf injection, the market's upside recovery after posting another round of fresh lows reinforces our short-term bullish convictions. For now, we are staying with the program of maintaining any long positions by keeping stops below $3.77 close only in referencing the spot month," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Thursday to clients.

"The short-term temperature views don't appear sufficiently bearish to sustain price declines south of the $3.80 level, and we will look for the money managers to do some short-covering [Friday] ahead of a weekend that could bring some shifts in the weather outlooks. The supply surplus against five-year averages has now been cut to below 10%, and although we were off the mark in our storage injection for last week, the size of [Thursday's] increase fortifies our opinion of a storage peak near 3.6 Tcf that will likely be established later next month. All factors considered, we still view this market as trading at or near the low side of what we expect to be about a 40-cent range when looking out over the next two- to three-week time period," Ritterbusch said.

Weather forecasts changed little overnight, and Commodity Weather Group in its Friday morning six- to 10-day outlook showed above-normal temperatures over the northwest one-third of the country with a modest accumulation of below-normal temperatures along the southeast U.S. trending from New Orleans to Norfolk. "A stalled upper-level trough next week along the East Coast continues to offer modest cool risks to the forecast for especially the East Coast, but it does cool the eastern Midwest and Southeast a bit more early in the six-10 day," said Matt Rogers, president of the firm.

"Otherwise, the pattern is still a variable one with more seasonal to warm ranges than not. The overnight guidance was mostly about the same or warmer than prior runs with still a very mixed Pacific picture that keeps the situation more complicated and uncertain. For the 11-15 day, about 36% of the European ensemble members show a cooler-than-normal period for the Midwest, East and South, while 64% of its members show a seasonal to warmer story. We continue to stake out the middle ground as it looks like there is room for at least some transient weak cooling mid to late period, but still no significant cold air connection to justify a stronger impact at this point."

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