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NatGas Cash Holds Its Own, But Futures Swoon; December Drops 18 Cents

Natural gas cash traders on Election Tuesday enjoyed a relative sea of tranquility for next-day deliveries compared to the chaos in the futures arena.

Most points slid about a nickel to a dime, but stout gains at eastern points and the Marcellus pulled the NGI National Spot Gas Average 3 cents higher to $2.16. Futures traders were not so fortunate as overnight forecasts flipped to a warmer outlook and before floor trading began at 9:00 a.m. EST the spot December contract had already given up 12 cents. At the close December had retreated 18.3 cents to $2.633 and January was lower by 16.8 cents to $2.810. December crude oil rose 9 cents to $44.98/bbl.

Overnight weather models reverted back to warmer patterns, primarily in the 11- to 15-day time frame. "While some minor cooler changes are noted in the East and Midwest in short range and along the East Coast for the six-10 day, warmer changes later in the six-10 day and especially in the 11-15 day lead to a demand loss [Tuesday]," said Commodity Weather Group in its Tuesday morning report to clients.

"The upcoming spike in tropical forcing (Madden-Julian Oscillation) appears to only temporarily topple the big warm-prevailing pattern based on both the American and European model guidance. Both sets of guidance are more aggressive this morning in shifting some degree of upper-level low pressure troughing back to the Gulf of Alaska, which leads to warmer-looking 11-15 day," said Matt Rogers, president of the firm.

Market technicians versed in Elliott Wave said, "this puts us in a third wave down [in a five-wave overall pattern] which is the most powerful," said David Thompson, principal with Powerhouse LLC, a Washington DC-based trading and risk management firm.

“In the bigger picture using a spot contract on a weekly basis we rallied from lows in the spring and this is the steepest pullback we've seen in that time. If you break $2.60, then you open up the possibility down to $2.20.

"We are now lower than the low of the November contract when it expired, and I tend to think we will get through $2.60 and the Elliott Wave marking of the end of wave three at $2.60 might be optimistic for price bulls. I think there is a good chance we get through $2.60."

From a fundamental standpoint, analysts see a rethinking of earlier takes on the supply-demand balance. "[Tuesday's] sharp selloff that is being led by the nearby December contract reinforces our opinion that it is premature to approach the long side of this market even when considering bull spreads as an alternative trading strategy," said Jim Ritterbusch of Ritterbusch and Associates in a Tuesday morning report to clients. "Updates to the short-term temperature views have shifted in a bearish direction that generally favors extension of mild trends across the nation's Midcontinent.

"This is providing an offset to expected normalization along the Eastern seaboard by next week. As a result, the usual storage peak is being delayed and adjustments to a record supply high to above the 4.1 Tcf level are generally being required. Furthermore, this unusually mild fall is beginning to force some bearish alterations to longer-term outlooks across the winter that could easily exacerbate the impact of record supplies."

The National Weather Service (NWS) continues to forecast below-normal heating requirements for major energy markets. For the week ending Nov. 12 NWS said New England should experience 135 heating degree days (HDD), 14 below normal, and the Mid-Atlantic is seen with 112 HDDs, or 28 fewer than normal. The greater Midwest from Ohio to Wisconsin is expected to endure 98 HDDs, or 61 fewer than its normal tally.

In physical trading major market points were relatively unscathed. Gas at the Chicago Citygate was flat at $2.26 and deliveries to the Henry Hub changed hands at $2.32, off a penny. Gas on El Paso Permian shed 6 cents to $2.07, and deliveries to SoCal Citygate were quoted 4 cents lower at $2.42.

Going forward it might be a good idea to keep a sharp eye on the NGI REX Zone 3 Tracker as additional expansions from east to west unfolds. Marcellus prices rose Tuesday and additional price realignment looks to be in the cards. Capacity is currently 1.8 Bcf/d and by the end of the year that is expected to rise to 2.6 Bcf/d, with likely shifts in Marcellus and Utica pricing. (see related story)

Gas on Dominion South rose 21 cents to $1.75 and deliveries to Tennessee Zn 4 Marcellus jumped 15 cents to $1.68. Packages on Transco Leidy added a stout 18 cents to $1.71.

Tallgrass Energy added a new receipt point to Zone 3 of Rockies Express Tuesday (see Daily GPI, Nov. 3). The point, referred to as Dominion/REX Clarington (non-Tenn) (non-Tenn) Monroe, flowed nearly 10 MMcf/d Tuesday and the point has a operating capacity of 267 MMcf/d, thus flows equate to a minuscule 3.7% of capacity. The point is part of the ongoing expansion of REX Zone 3. While receipts at Dominion/REX Clarington (non-Tenn) (non-Tenn) Monroe currently account for just 0.6% of total receipts into Zone 3 it is likely that receipts there will ramp up considerably going forward.

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