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East Coast, West Coast Strength Can't Offset Overall Weakness; Futures Sacked For A Loss

The price being paid Monday for Tuesday physical natural gas delivery on average lost 2 cents as major hubs were mixed, but firm pricing on the West Coast and Eastern Seaboard was not able to offset weakness at Gulf and interior locations. At the close of futures trading, December had fallen 6.8 cents to $3.445 and January skidded 6.7 cents tp $3.524. December crude oil added a penny to $94.62/bbl.

Major trading hubs were mixed as forecasters noted active weather patterns throughout the country rather than any persistent trend in temperatures. "A cold front is expected to extend from Arizona to Minnesota on Monday, triggering snow and rain across a handful of states," said Wunderground.com meteorologist Kari Kiefer. "Showers and thunderstorms will be possible across Arizona, New Mexico and parts of the southern Plains, while snow will extend from the central Rockies to the northern Plains. Heavy snow will be possible in Colorado throughout the day. By the evening, wet weather will push into the Mississippi Valley and into the upper Midwest."

Quotes for gas delivered Tuesday on Transco Zone 6 into New York City added 12 cents to $3.44, yet deliveries to the Chicago Citygates skidded 5 cents to $3.50. At the Henry Hub Tuesday packages were seen 8 cents lower at $3.38, and gas at El Paso Permian was flat at $3.26. At Opal next-day gas rose 2 cents to $3.37.

Despite falling next-day power prices and mostly firm to higher next-day gas private power generators in California seemed pleased with the economics of power generation and expected natural gas prices to continue lower. "Power prices have recently firmed up quite a bit as well as heat rates," said a San Diego-based independent power producer.

With next-day power quoted on the IntercontinentalExchange at SP-15 at $44.35/MWh, down $1.92 and next-day gas at the SoCal Border seen at $3.54, up 6 cents heat rates still figured in north of 12 (MMBtu/MWh), well above the heat rates of his company's combined cycle gas-fired generation, closer to 7.

"Heat rates will continue to go higher if natural gas prices continue to deteriorate. When gas was at $2 a couple of years ago, heat rates were pretty high."

At West Coast points next-day gas was mostly higher, bucking the overall national trend. At Malin Tuesday gas was seen at $3.47, up 3 cents and at the PG&E Citygates next-day deliveries slumped 4 cents to $3.74. At the SoCal Citygates gas came in at $3.68, up a penny and at SoCal Border points Tuesday packages gained 7 cents to $3.54. Gas on El Paso S Mainline changed hands at $3.56, 8 cents higher.

In New England next-day prices were mostly higher as early week temperatures were expected to hover below seasonal norms. Wunderground.com forecast that Boston's 45 high on Monday was anticipated to rise to 50 on Tuesday before jumping to 57 on Wednesday. The normal high in Boston this time of year is 55. Hartford CT's Monday high of 46 was expected to reach 48 Tuesday and scoot to 61 Wednesday. The normal high in Hartford this time of year is 56.

Quotes at the Algonquin Citygates for Tuesday parcels were seen at $4.80, up 26 cents and gas at Iroquois Waddington rose 4 cents to $3.77. On Tennessee Zone 6 200 L packages for Tuesday delivery slipped 6 cents to $4.62.

"The market kind of hovered for the most part down 6 to down 9 cents for most of the day. I don't know about sub $3 gas, but you might see $3.25 depending on how weather goes and what is in the mix," commented a New York floor trader. "We are getting to that cusp point where you expect the market to turn around, but is there any reason for this thing to be poppin' to the upside? I don't think so."

Weather forecasts changed abruptly over the weekend. Although the first 10 days are expected to be variable, beyond that meteorologists are looking for a warm pattern to seize the eastern United States. In its morning forecast, Commodity Weather Group said, "The models continue to show a very active and changeable pattern situation through the next 10 days with much of the nation averaging out the transient warm and cool periods close to seasonal levels in both the one- to five and six- to 10-day," said Matt Rogers, president of the firm.

"There were enough cooler changes to see a demand gain in the first 10 days of the forecast. But the big story from the weekend was a more significant shift in the pattern across the North Pacific as Alaskan-area ridging retrogrades toward the Aleutians and Dateline by the 11-15 day. This sets the stage for a warmer pattern to take hold of the eastern half of North America. The warmest focus seems to be for the South to Midwest first, but expansion toward the East Coast is seen by later in the period, too with potential for this to dominate the second half of November now."

In closing comments Friday, Tim Evans of Citi Futures Perspective saw the day's 7-cent decline in front-month futures as the result of  "new pipelines into the Northeast allow[ing] more supply to flow from the Marcellus Shale with potential to displace demand from the Henry Hub delivery point for the Nymex futures contract."

Evans was not optimistic about higher prices. "Between the possibility of increased supply and the falling price it looks as though we might have to wait for colder seasonal temperatures and the first storage withdrawal or two before prices swing higher again."

Addison Armstrong of Tradition Energy acknowledges near-term price pressures but sees potential relief later on. "A lack of early cold, in combination with near- if not new record highs in dry gas production, plus more than ample supplies of gas in storage have dragged prices back to within a penny of September's prompt gas contract low at $3.400.

"But the fast-approaching start of winter and increasing levels of coal-to-gas switching as power generators ramp up their gas-fired power plants to take advantage of low gas prices should provide support for the market," he said in a morning note to clients.

The National Weather Service (NWS) forecasts mixed heating requirements for major energy markets for the upcoming week. For the week ended Nov. 9 NWS predicts New England will see 158 heating degree days (HDD), 10 above normal, and the Mid-Atlantic will endure 138 HDD, four above normal. The Midwest, however, from Ohio to Wisconsin is expected to experience 132 HDD, or 18 below its normal tally.

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