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Most Points See Sharp Declines; Futures Retreat

Physical gas for weekend and Monday delivery skidded a hefty 11 cents on average in Friday trading. Demand-driven gains at New England points and firm eastern quotes were unable to counter pervasive selling, which saw many locations endure double-digit losses. At the close of futures trading December had retreated 6.8 cents to $3.513 and January was down 7.2 cents to $3.591. December crude oil tumbled $1.77 to $94.61/bbl.

In New England weekend and Monday gas soared as weather forecasts called for much cooler weather by Monday and power prices surged. Wunderground.com predicted that the high in Boston Friday of 70 would slide to 64 on Saturday before reaching a chilly 43 on Monday. The seasonal high in Boston is 56. New York's Friday high of 72 was anticipated to ease to 64 Saturday before dropping to 48 Monday. The normal early November high in New York is 59. Philadelphia's 72 high on Friday was predicted to slide to 66 Saturday before dropping to 48 Monday. The normal high in Philadelphia is 58.

Power prices for Monday vaulted higher. IntercontinentalExchange reported Monday peak power at the New England Power Pool's Massachusetts Hub rose $15.11 to $50.31/MWh and peak deliveries to the PJM West Interconnect gained $9.19 to $44.39/MWh.

In New York, power for Monday delivery at the New York Independent System Operator's eastern delivery point (Zone G) gained $5.77 to $45.83/MWh, and power to western New York (Zone A) added $4.13 to $41.13/MWh.

Quotes for weekend and Monday gas at Algonquin Citygates jumped $1.07 to $4.54, and gas into Iroquois Waddington gained just a penny to $3.73. Deliveries on Tennessee Zone 6 200 L added 97 cents to $4.68.

Farther south, market points showed less impact as weekend and Monday deliveries on Dominion rose a penny to $3.09 and gas on Tetco M-3 gained a nickel to $3.22. Gas headed for New York City rose a dime to $3.32.

Marcellus points were firm also. Transco Leidy Line gas came in at $2.88, up 16 cents, and packages on Tennessee Zone 4 Marcellus gained a penny to $2.53.

Other market centers were forced to endure double-digit losses. Gas into Chicago Citygates for weekend and Monday delivery dropped 18 cents to $3.55, and at the Henry Hub gas was seen at $3.46, down 11 cents. Deliveries on El Paso Permian changed hands at $3.26, down 22 cents, and at the PG&E Citygates gas came in at $3.78, off by 13 cents.

Futures traders lamented the lack of cold weather. "I don't think there is any cold weather in the country, and I look for the market to trade down to $3.35," said a New York floor trader. "The trend is lower, and I think people are adding to short positions."

Traders on Friday were also trying to make sense of a private notice sent by CME Group to clearing members, which explained that the trading exchange made a revision on Oct. 30 to the November 2013 natural gas futures contract expiration that occurred on Oct. 29.

Without providing a reason, CME Group in its notice revised the November contract's expiration from $3.496 to $3.497.

"CME Clearing has contacted all affected firms and made the necessary adjustments," the exchange said. Calls to CME for clarification were unreturned at time of press.

Settlement prices on the final day of trading for a contract are calculated as a weighted volume average during the last half hour, and queries to the exchange went unanswered. Some suggested "banging the close," inputting large orders at the close to influence the settlement as a possible factor, or possible errors related to block trades -- large Henry Hub trades made in an over-the-counter format but cleared by CME.

An industry veteran said much of the difficulty may be "how much work was done putting out invoices that someone had already made calculations on. It all depends on the amount of paperwork that was generated on the first price. Is it going to have to be redone based on this second price?"

The reason for the change is unclear, but "customers are complaining that there is a shift in value and that they have more paperwork," said Tom Saal, vice president at INTL FC Stone in Miami.

According to top analysts, a more supportive weather outlook is going to be required for this market to establish a bottom, let alone any kind of advance. "We didn't view [Thursday's] EIA (Energy Information Administration) report as a game changer since it wasn't far removed from our expectation," said Jim Ritterbusch of Ritterbusch and Associates. "And while the surplus against average levels narrowed to only 58 Bcf, such an overage appears ample to meet upcoming winter needs with production cruising along at a record pace.

"Until the short-term temperature views shift in the direction of some below-normal trends, this market will continue to have difficulty placing a price bottom. [Thursday's] close below our expected $3.60 support level would appear to favor additional selling that could carry to the pre-expiration November lows of $3.48. While closing the November-December gap would be a counter-seasonal development, current bearish supply-side forces combined with mild temperature views into mid-November can easily provide ingredients for an additional 10-cent decline from [Thursday's] settlement."

Ongoing production increases are likely to keep the bulls corralled. The EIA reported Thursday that Lower 48 natural gas production for August reached a record 74.82 Bcf/d, up 0.3%. Stout declines were seen in the offshore Gulf of Mexico and Louisiana, but the "Other States" category including the Marcellus region surged 2.4% to 27.02 Bcf/d.

Weather forecasters see a series of fickle cool and warm patterns with no clear trend. Commodity Weather Group in its six- to 10-day and 11- to 15- day outlooks sees "a speedy pattern situation continu[ing] with transient warm and cool periods affecting the Midwest, East and South over the next two weeks. Most of the changes [Friday] were tweaks to make the warmer events a bit warmer and the cooler events a bit cooler, but the national demand picture is close to unchanged if not slightly lower demand.

"This continues to be a tricky pattern as it cannot be cleanly called a cold or warm-prevailing one. In the 11-15 day, there are still hints of a Midcontinent cold push edging forward to around day 13, but the European ensembles wash out the impacts by days 14-15...," said Matt Rogers, president of the firm.

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