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Appalachian Strength Lifts NatGas Cash, Futures See Upside Potential

Physical natural gas for Wednesday delivery generally rose across most market points as hefty gains in Appalachia along with firm pricing in Louisiana, the Midwest, and Texas outdistanced softness in New England, the Rockies, and California. The NGI National Spot Gas Average rose 2 cents to $2.60.

Futures rose, but analysts didn't see any weather developments meriting such an increase and suggested the bullish enthusiasm of the petroleum markets made its way to natural gas. At the close November had risen 5.8 cents to $2.891 and December was up 5.3 cents to $3.071. November crude oil bounded higher by $1.34 to $50.92/bbl.

Above normal temperatures along with pipeline delivery constraints at eastern points cut into seasonal heating load if not adding to some cooling requirements. "Temperatures are expected to remain well above average through at least this weekend in parts of the Midwest and East," said Wunderground.com in a report. "The warmth will likely peak from Friday into the weekend, when widespread highs 10 to 20 degrees above average are forecast along and east of the Mississippi River. This translates to temperatures reaching the 80s as far north as the Mason-Dixon Line and the Ohio Valley, with 70s in the lower Great Lakes and Northeast."

Gas at the Algonquin Citygate shed 9 cents to $3.02 and deliveries to Tennessee Zone 6 200 L fell 23 cents to $2.86. Gas bound for New York City on Transco Zone 6 was flat at $2.89.

The big mover on the day was gas on Tetco M-3 Delivery soaring $1.30 to $2.58 amid a host of pipeline restrictions. Texas Eastern has restricted interruptible and secondary out of path nominations at a wide range of points including but not limited to the Wheelersburg compressor station, Berne compressor station, the Marietta Mainline, and Lebanon Lateral.

Wunderground.com said the ongoing warmth is likely to persist. "Summerlike warmth is expected to continue in parts of the Midwest, South and East over the next one to two weeks, making many residents of these regions wonder if it's October or August. The weather pattern that has persisted to some extent since mid-September is forecast to remain in place through at least mid-October, possibly into the end of the month. This consists of a large bulge in the jet stream, or upper-level ridge of high pressure, across the eastern U.S., allowing warmth to build and persist.

"Meanwhile, a southward dip in the jet stream, or upper-level trough, has been stuck in the West, where the colder air has been locked in."

Elsewhere next day gas firmed. Deliveries to the Chicago Citygate rose a nickel to $2.76 and packages at the Henry Hub were quoted 4 cents higher to $2.90. Gas on El Paso Permian changed hands a nickel higher at $2.39 and parcels on Transco Zone 4 rose 4 cents to $2.89.

Out west gas at Opal added 2 cents to $2.50 and gas at Malin was quoted a penny higher at $2.54. SoCal Citygate came in 2 cents lower at $3.03 and gas priced at the SoCal Border Average was seen flat at $2.59.

Early in the trading session players got a picture of more seasonal temperatures in the six- to 10-day time frame. "The forecast features a mix of changes in this period, most notably being cooler from the southern Midwest to the South," said MDA Weather Services in its morning six- to 10-day outlook  "This adjustment comes as a result of a stronger surface high pressing into these areas in the mid-period and allowing for temperatures to briefly approach normal. The Northeast, however, has a small warmer lean focused in the early stages out ahead of a cold front.

"The upstream pattern over the Gulf of Alaska features a deepening trough, resulting in increased moisture into the Pacific Northwest in the mid to late period. Overall, the period features broad A's [above normal temperatures] in the Eastern Half."

Traders see the market vulnerable to the upside. "This market appeared to get swept up in some of the bullish euphoria that spread across the petroleum markets. Otherwise, we are not seeing significant change in the short term temperature views that may have sparked today's price advance," said Jim Ritterbusch of Ritterbusch and Associates in closing comments.

"Nonetheless, we are maintaining a short term bullish opinion predicated largely on an oversold technical condition and a fundamental narrative in which a newly developed storage deficit has developed following an extended period of oversupply.

“While today's advance carried slightly above our expected resistance at the $2.88 level, we are not expecting much upside follow through unless Thursday's” Energy Information Administration “storage report offers a bullish surprise such as an increase of less than 65-70 Bcf. In sum, we are viewing this week's price action as a potential base building process that could lift nearby futures back to above the $3 mark in short order. We are maintaining stop protection on any existing longs at the 2.79 level on a close only basis for now.”

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