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Cold Has Midwest Buyers Scrambling; Futures Inch Higher

Wednesday physical natural gas trading for Thursday delivery saw widespread weakness of a few pennies at most spots around the country offset by significant strength in California and New England, where colder temperatures were beginning to set in.

At the close of futures trading, November had managed to add 3.8 cents to $3.619 and December added 2.7 cents to $3.733. December crude oil sank $1.44 to $96.86/bbl.

Midwest buyers trying to top off storage have found themselves unable to put the finishing touches on storage as early cold weather prompted heavier than expected usage.

"We had to sell some gas on the spot market, but now we are going completely the opposite way,” said Midwest utility buyer. “The weather turned on us and we have had 3 days where we are lucky if the highs hit the mid-40s.

"It's kind of surprising that it is so cold so fast, and I'm surprised at how much gas everyone is using. October is a 'gotcha' month. You start the month warm and then the last half is cold. We haven't gotten storage full yet since we have been using so much gas, and we have had to take our storage noms to zero.

“At the middle of the month we were doing 50,000-60,000 Dt daily, but this morning [Wednesday], we almost hit 100,000."

The buyer noted that with the cold weather, the differential between Northern Natural Ventura and Chicago Citygates had narrowed in to 3 cents, much lower than normal.

"Well below average middle/upper level heights and temperatures will continue across much of the eastern half of the Continental U.S. through at least early next week,” according to the National Weather Service in Chicago. “The persistent upper ridging over the western Continental U.S. continues to buckle the jet stream from northwestern Canada south-southeastward across the region...and this continues to steer numerous perturbations within the larger scale flow pattern right across the area.

"Although no big precipitation events are expected with this disturbances...they will act to bring reinforcing shots of  cold air and cloud cover to the region through Friday. Therefore, the main forecast concerns in the short-term period will be with temperatures and cloud cover trends."

Gas for delivery Thursday on Alliance slipped 2 cents to $3.92, and gas at the Chicago Citygates was off 2 cents as well to $3.93. Northern Natural Ventura gas was quoted at $3.90, up 1 cent, and Demarcation gas for Thursday came in at $3.90, unchanged. On Michcon, next-day packages changed hands at $3.86, up a penny, while Consumers gas was seen at $3.92, up 2 cents.

Northeast points proved to be the day's big gainers, poking close to $5.00 as power prices proved supportive and the temperature outlook headed south. Wunderground.com forecast that Boston's high of 57 on Wednesday would fall two degrees Thursday and then to 50 Friday. The normal high this time of year is 59.

Gas at the Algonquin Citygates for Thursday delivery jumped 63 cents to $4.70, and gas into Iroquois Waddington surged 21 cents to $4.23. Tennessee Zone 6 200 L next-day deliveries vaulted 57 cents to $4.75.

Next-day power prices in the region also gained. IntercontinentalExchange reported that next-day peak power at the New England Power Pool's Massachusetts Hub gained $2.35 to $45.58/MWh, while deliveries to the New York Independent System Operator's Zone A (western New York) delivery point rose $6.70 to $43.00/MWh.

Of the actively traded points, Marcellus-centric Transco Leidy took the day's honors with a rise of 72 cents to $3.22. Transco reported on its website that it continued " to experience changes in gas flow and supply sources on its system. Consequently, it will become necessary to actively monitor and limit, if necessary, certain receipt locations on the Leidy Line."

Other eastern points showed nominal movements. Gas for delivery Thursday on Dominion fell 4 cents to $3.58, and Tetco M-3 next-day packages slipped 2 cents to $3.82. Gas bound for New York City on Transco Zone 6 was up a penny at $3.95.

Next-day peak power at the PJM Interconnect's Western Hub fell 81 cents to $43.68, according to the IntercontinentalExchange.

Thursday's release of storage data by the Energy Information Administration (EIA) is set to put the weekly inventory reports back on a normal schedule following the government shutdown. Expectations generally center around a low 80 Bcf increase for the week ended Oct. 18.

The deficit to last year should contract and the surplus relative to the five-year average should increase. Last year, 64 Bcf was injected and the five-year average build stands at 67 Bcf.

Kyle Cooper of IAF Advisors calculates an 82 Bcf gain, and a Reuters survey of 23 industry cognoscenti expects an average 79 Bcf injection. Industry consultant Bentek Energy forecasts an 86 Bcf build.

Bentek is looking for greater production to prompt its hefty build. "Supply disruptions from the previous two weeks did not roll into the current storage week, with production averaging 65.4 Bcf/d, the highest average since the July 26 storage week and 1.2 Bcf/d above the average of the previous three weeks."

Commodity Weather Group, in its 11- to 15-day outlook Wednesday, showed below-normal temperatures limited to the Upper Great Lakes and portions of New England, a less expansive pattern than Tuesday.

"While we continue to track impressive early season cooling this current week, the models continue to slowly unwind the pattern going into next week and into the 11-15 day range," said President Matt Rogers. "We still have one more cold push to watch toward the middle of next week. The European ensemble is actually colder than our outlook this morning for the Midwest (much below) for next week's event and with the Alaskan ridge spike still in place, there is a risk for that.

"However, other modeling shows less cold risks by keeping the event more transient than this week's activity. The jet stream shifts to a split flow for the 11-15 day, which weakens cool air availability and trends much of the nation closer to normal temperatures overall, but the Pacific pattern is too mixed to generate a big sustained warm pattern yet either."

Longer-term weather forecasters aren't so sure influxes of cold air will have much staying power. Temperatures across the United States over the next three months will be a decidedly mixed bag, with early cold in central and eastern areas expected to fade in the first days of 2014, according to forecasters at Andover, MA-based WSI Corp. "As the first shot of significant cold air spurs above-normal heating demand across much of the eastern United States, there are many questions regarding its staying power in the weeks and months ahead," said WSI Chief Meteorologist Todd Crawford (see Daily GPI, Oct. 22).

Market technicians studying the last two days of free-falling futures prices see a couple of options.

"Only two possibilities [exist] based on the last two days of price action," said United ICAP analyst Brian LaRose. "Either the $3.129-3.869 advance is being corrected or a renewed downtrend has begun. [We] peg $3.412-3.287 (0.618 and 0.7862) as the lowest levels consistent with any corrective retreat. Sink below this zone and we will have no choice but to look for a larger degree ABC pattern to unfold from the $4.429 high," he said in closing comments Tuesday.

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