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Fund Short Covering In Play; November Called 3 Cents Higher

November natural gas is set to open 3 cents higher Friday morning at $2.90 as weather forecasts also call for cooling in the Midwest, although the East continues warm. Overnight oil markets were mixed.

"The forecast trends warmer in the East in the mid to late period, with this being a result of a round of aboves preceding the next wave of troughing into the Midwest," said forecaster MDA Weather Services in its six- to 10-day report to clients. "Any cooler adjustments are focused in the Rockies, and the period averages with below normal temperatures from parts of the Midwest to the South, while aboves are featured in the Northeast.

"Confidence, however, remains lower than usual given still volatilities and disagreements among guidance as it relates to current western Pacific typhoon Lan and its influence on the pattern. Record heat remains forecast for the start of the period in Southern California.”

Traders suggest that the overnight market strength is the result of short covering."It would appear that the bulk of this buying is related to bottom fishing or profit taking by the money managers who have been rotating assertively into the short side of the market in recent weeks," said Jim Ritterbusch of Ritterbusch and Associates in a morning report to clients. "Although [Thursday's] counter intuitive response to a seemingly supportive weekly [Energy Information Administration] storage figure might appear overcooked, we feel that continued mild short term temperature outlooks per weekend updates could still force a return to yesterday's lows just above longer term support at the $2.75 level.

"Although we are having difficulty building a strong case for fresh price lows given a supply deficit that has stretched out to about 35 Bcf, we are also conceding to a significant amount of chart damage and unusually large carrying charges that will be deterring both speculative and commercial entry into the long side. With the month of October quickly winding down, daily and weekly price swings will be determined largely by adjustments to the short term temperature forecasts. And even the longer term views could spur price movement especially with a general view developing in favor of a La Nina pattern that could prompt another mild winter similar to last year."

In overnight Globex trading the expiring November crude oil contract fell 28 cents to $51.01/bbl and November RBOB gasoline rose a penny to $1.6520/gal.

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