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Cold Weather, Futures Push All Cash Points Higher

As could be expected following Wednesday's 60.2-cent near-month futures spike and with heating load remaining substantial in northern market areas, the cash market saw strong increases across the board Thursday.

Gains ranged from a little more than a quarter to about a dollar (NGPL-Louisiana). Except for the Rockies tending to see most of the smallest upticks, prices rose fairly consistently across geographic market areas.

Cash-screen convergence has been tricky this month. At one point Henry Hub had been trading more than $2 back of November futures, but as of Tuesday was about 4 cents above them. Then the Hub dropped about half a dollar behind Wednesday, but on Thursday the Hub surge and the screen retreat left futures at a deficit of a little more than 40 cents. Oh well, there's always Friday to find a common middle ground.

CIG recorded one of the smallest gains of around 30 cents despite having about half of its storage withdrawal capability off-line (see Transportation Notes). Although blizzard conditions raged Thursday in Colorado's Front Range area, the Rockies in general will see a warm-up into the 60s this weekend, according to The Weather Channel.

The Energy Information Administration was near the bottom end of prior expectations and well below consensus estimates centering around the low 30s Bcf in reporting a 19 Bcf storage injection for the week ending Oct. 20. Although it seemed to be a bullishly small build, Nymex traders apparently preferred to focus on the virtual certainty that inventories will end the injection season at record-high levels. November futures fell nearly 20 cents in the contract's penultimate day of trading.

A couple of sources concurred that the futures drop, coupled with the loss of industrial load over a weekend and the imminent warming trend in the Rockies, likely means softer cash numbers Friday. The northern states will stay chilly into the weekend, they said, but that probably will not be enough to avert a pullback. They noted falling prices in late cash deals Thursday in sympathy with the weaker futures screen, which usually indicates next-day price direction in the physical market.

A Gulf Coast producer said he anticipates lower prices Friday. He observed that November futures had been trading around $7.90 in overnight Access activity but fell about 40 cents almost immediately after Nymex's regular open outcry session began.

Thursday was a "very slow day" in bidweek trading, the producer said. He believed that nearly everybody wants to finish November business before the weekend, "but sometimes what you want to do and what you can do" aren't the same thing, he said. Basis was getting much stronger, he added, reporting that he traded Transco Station 65 at plus 20-21 cents Thursday; deals there had been done at plus 13-14 cents earlier in the week, he said.

A Northeast marketer said cash quotes came off late in sympathy with the screen turning negative. It seemed as if the low storage injection should have spurred a futures advance, he said, "but I guess I shouldn't be surprised. This market never ceases to amaze me."

The marketer also perceived quiet bidweek trading Thursday, but said he expects just about all November baseload business to get wrapped up as prompt-month futures expire Friday. He quoted these New England citygate basis deals: Dracut at plus 60 cents, the Algonquin citygate at plus 70 cents, and Tennessee Zone 6 at plus 72 cents.

Keep your fingers crossed, but it appears increasingly probable that Gulf of Mexico production will get past the 2006 Atlantic hurricane season totally unscathed, only a year after the most destructive season ever. It also appears that despite the lack of offshore outages and record-setting storage levels, an early taste of winter chill has prevented an October tanking of spot prices -- a possibility that has been the subject of much speculation since last spring.

No doubt many who counted on a price crash in the October aftermarket and went into the month in a short supply position are feeling like third-degree burn victims by now. Thursday's price strength carried every point to $3-plus premiums over first-of-month indexes, and quite a few points were trading more than $4 above index.

Barring a monumental collapse by November futures on their last day of trading Friday, monthly indexes should be multi-dollars higher than October's. November's close at $7.497 Thursday contrasts sharply with the October settlement price of $4.201.

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