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Market Continues Big Early-November Slide

Prices continued to tumble Tuesday as bearish influences remained in play: widespread moderate weather, negative futures guidance and the growing lack of storage space to stash gas not needed for current burns.

In only the second day of trading in November, daily spot prices were already at triple-digit deficits to first-of-month indexes at all points. A large majority were more than $3-4 below index.

Tuesday's losses ranged from as small as a little more than 35 cents to about $2.75. Softening tended to be greatest in the West, where snow and cold weather was mostly limited to mountainous areas with relatively little population, and the Pacific Northwest was due to get a break Wednesday from a series of winter storms before another one arrives Thursday.

Many points in South and West Texas, the Midcontinent and Rockies were retreating below $7 Tuesday after all had ended October in the vicinity of $9 or more.

Chances of a cash rally in the near future appear to be slim to none after the December screen fell another 34.5 cents Tuesday and weather forecasts remained fairly mild through next week.

According to the National Weather Service (NWS) outlook for the Nov. 7-11 workweek, bearish weather for the gas market will stick around for a while. The federal agency expects no below normal temperatures, but sees above normal readings through nearly the entire U.S. The exceptions where normal conditions are predicted are the southern half of the Florida peninsula; Washington state along with the northern sections of Idaho and Oregon; the Upper Plains and Upper Midwest; and northern New England.

Restoration of Gulf of Mexico shut-ins continued to plod along. Minerals Management Service said reported outages fell 157.29 MMcf/d Tuesday to 5, 269.45 MMcf/d, so nearly 53% of normal Gulf production remains offline well after the rampages of Hurricanes Katrina and Rita.

A Gulf Coast producer who trades the Northeast sees the glimmer of potential firming way off on the horizon. Forecasters are now expecting cold weather to return in the Northeast a little sooner than expected, he said. Previously the "best guess" was around the third week of November, he said, but now "they think it could arrive as early as mid-month." Such an event might not be able to rally prices, but possibly could stop the big slide that prices are currently experiencing, he added.

For now, though, area utilities are "suggesting" to customers that they not overdeliver gas to avoid risking OFOs, the producer went on. "Most people are injecting into storage as much as possible, but the ratchets are down and there is little space left" with the end of the traditional injection season arriving. However, "this market has been so reactionary since the hurricanes that any little blip could cause a big move back up, he said, suggesting that some with space left in their storage accounts might see a good buying opportunity after the big price drops of Monday and Tuesday.

The producer added that he was "trying to get in and out of my positions quickly each day, and either make a little money or try not to lose any." It's almost mandatory to trade that way when prices are moving by more than a dollar each day, he said. He reported seeing "a little bit of a bounce" in late trading Tuesday, whereas on Monday "it was all straight down."

A Calgary-based producer noted that gas was backing up at Sumas due to the Northwest outage in Washington state that began Tuesday (see Transportation Notes). As a result, a ton of British Columbia production was trying to go eastbound via Alliance and NOVA, he said. He expects "a little improvement" in western markets next week, but not much. Western Canada is seeing its normal range of temperatures, with occasional freezing at night but fairly moderate conditions during the day, he said.

Citigroup analyst Kyle Cooper commented that from a pricing perspective, "yes, prices have fallen precipitously from recent highs, but are still at closing levels never witnessed prior to the last couple of months. Can the market rally $1/$2 on the first real cold snap? Absolutely. The only question is whether that rally is from here or something still much lower."

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