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Midwest, East Lead Strong Advance; Futures Fall Hard

Physical natural gas for Tuesday delivery advanced overall on average 13 cents in Monday's trading. Midwest locations were especially strong as pipelines reported constraints and eastern points jumped with weather forecasts calling for below normal temperatures by midweek.

At the close of futures trading Monday, November had fallen 9.6 cents to $3.668, and December was off 10.4 cents to $3.793. November crude oil dropped $1.59 to $99.22/bbl, the first settlement below $100 since July.

Panhandle Eastern reported on its website that capacity through the Edgerton, IN, compressor station would be limited to Primary and In-Path nominations only. It added that evening and intraday nominations would be subject to scheduling reductions, regardless of rate schedule priority.

Northern Natural Gas reported a constraint at its Beatrice, NE, receipt point.

Temperatures in the region were forecast to drop well below normal. Wunderground.com predicted Monday's high of 39 in Minneapolis would rise to 43 on Tuesday and Wednesday; the normal high is 56. Chicago's high Monday hit 50, but it was to drop to 46 Tuesday then rise two degrees Wednesday. The normal high this time of year is 61 in Chicago.

The National Weather Service in Chicago said it expected temperatures to "steadily fall into the lower 30s/upper 20s after midnight" on Monday. But forecast increasing clouds ahead of the next system that would arrive before sunrise Tuesday. "The sooner they arrive...the sooner the temperature drop will level off."

Gas for delivery Tuesday on Alliance surged 22 cents to $4.05, and deliveries to the Chicago Citygates jumped 24 cents to $4.09. On Michcon, gas for Tuesday was seen at $3.92, up 9 cents, while Consumers gas changed hands at $3.97, up 14 cents. Deliveries to Northern Natural Ventura gained a stout 23 cents to $3.99.

Quotes for next-day gas at eastern points jumped as well, on forecasts calling for falling temperatures. Wunderground.com predicted the Monday's high in New York of 67 would erase one degree Tuesday before dropping to 54 Wednesday. The normal high is 62. Philadelphia's high of 68 was expected to be 64 Tuesday before dropping to 55 Wednesday. The normal high this time of year is 61. Washington DC's Monday high temperature of 68 was seen dropping four degrees Tuesday then to 57 Wednesday; the normal high is 67.

On Dominion, gas for delivery Tuesday surged 21 cents to $3.60, while deliveries to Tetco M-3 added 37 cents to $3.83. Gas bound for New York City on Transco Zone 6 added 40 cents to $3.90.

Power generators in California got some relief from rising gas prices in the form of moderately improved quotes for next-day power. Demand was expected to increase slightly as well. IntercontinentalExchange reported that Tuesday peak power at NP-15 rose 97 cents to $42.05/MWh, and power at SP-15 gained $1.47 to $44.61/MWh. The California Independent System Operator forecast that Tuesday's peak load would rise to 31,427 MW from Monday's predicted 30,498 MW.

At the PG&E Citygates, gas for Tuesday delivery added 8 cents to $4.07 and at the SoCal Citygates, Tuesday parcels came in at $4.03, up 11 cents. The SoCal Border gas was quoted at $3.91, up 15 cents, and El Paso S Mainline next-day gas was seen at $3.94, up 15 cents.

Elsewhere, other market centers firmed. Henry Hub Tuesday packages added 6 cents to $3.78, and at the NGPL, Midcontinent Pool gas came in at $3.80, up 7 cents. Deliveries to El Paso Permian rose 8 cents to $3.65.

Traders Tuesday will get a chance to trade off Energy Information Administration (EIA) inventory data delayed by the government shutdown. EIA is to report changes in storage for the week ended Oct. 11 at 10:30 a.m. EDT. Storage for the week ended Oct. 18 will be reported on Thursday as usual.

For the week ended Oct. 11, a Reuters survey of 24 traders and analysts revealed an average 80 Bcf with a range of 73 Bcf to 91 Bcf. United ICAP analysts also are looking for a build of 80 Bcf. Industry consultant Bentek Energy calculates a 70 Bcf increase. Last year, 54 Bcf was injected; the five-year average stands at 75 Bcf.

Forecasts turned cooler. WSI Corp. in its Monday morning 11- to 15-day outlook showed below-normal temperatures extending from New England to Mississippi and Alabama, and through the Ohio Valley. Other portions of the country are seen as normal.

The "forecast has trended cooler across the interior West and central U.S. under another highly amplified cold trough. Confidence is near average today as models show generally reasonable large scale model agreement." Risk to the forecasts "remains to the colder side over the eastern two thirds under another highly amplified cold trough. Temperatures could run cooler over the interior West late in the period if another cold trough moves over the region."

DEVO Capital President Mike DeVooght said the cooler weather outlooks continue to support the market; however, "ultimately production continues to increase and, in our opinion, that will keep prices trading in the $3.50-4.00 range in the short term. We will hold our short producer hedges.

"We are continuing to watch the increased gas production in the East, which is traditionally an end-user market. Those basis numbers have been deteriorating with many of these markets now trading at discounts to the West."

Specifically, DeVooght advised trading accounts to hold a short November futures position established earlier and rolled from $4.35 with a 25-cent risk on the trade. End-users should stand aside, and those at risk for lower prices should hold a short November-March strip from $4.50-4.60.

Tom Saal, vice president at INTL FC Stone, expects prices to trend higher in calendar 2014 but sees mixed signals in calendar 2016 and calendar 2018. In his work with Market Profile, he expects the market to test last week's value area at $3.847-3.755 and noted that there are no other weekly value areas to test.

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