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Physical, Futures Rumble Lower; December Drops 6 Cents

Physical gas for delivery Wednesday took a cue from the screen and on average was 4 cents lower in Tuesday's trading.

Notable exceptions were New England states, where forecasts of cold weather and pipeline constraints kept a solid bid under the market. Eastern points were mixed, and major market centers were down about a dime. At the close of futures trading, December had fallen 6.1 cents to $3.556 and January was off 6.2 cents to $3.605. December crude oil added 31 cents to $93.34/bbl.

New England prices rose sharply, and eastern prices were mixed as cold was forecast to envelop a large portion of the Northeast, Mid-Atlantic and Ohio Valley. The National Weather Service in southeast Massachusetts predicted that "large high-pressure builds in from the West [Tuesday night] and Wednesday with continued cold temperatures. A frontal system will probably bring some rain showers Friday night/Saturday morning...followed by blustery and unseasonably cold weather Sunday into Monday."

Forecaster Wunderground.com predicted that Tuesday's high in Boston of 45 would drop to 43 on Wednesday but rise to 46 Thursday. The seasonal high in Boston this time of year is 50. Philadelphia's high Tuesday of 52 was expected to drop to 46 Wednesday before recovering to 55 Thursday. The normal mid-November high in Philadelphia is 52. Pittsburgh's Tuesday high of 43 was anticipated to rise to 48 Wednesday and reach 52 on Thursday. The normal high in Pittsburgh is 50.

Gas headed east on Algonquin is facing limitations. According to Genscape, for Nov. 20 "Algonquin Gas Transmission (AGT) has approved and scheduled nominations at each pipeline segment and meter station up to AGT's operational capacity [and]...AGT has restricted interruptible and approximately 96% of secondary out-of-path nominations that exceed entitlements sourced upstream of its Stony Point Compressor Station (Stony Point) for delivery downstream of Stony Point."

Genscape also reported that "AGT has restricted interruptible and approximately 98% secondary out of path nominations that exceed entitlements sourced from points west of its Cromwell Compressor Station (Cromwell) for delivery to points east of Cromwell. No increases in nominations sourced from points west of Cromwell for delivery to points east of Cromwell, except for Primary Firm No-Notice nominations, will be accepted."

Power prices in the East and Northeast firmed. IntercontinentalExchange reported that peak power for Wednesday delivery at the New England ISO's Massachusetts Hub gained $5.71 to $51.27/MWh and Wednesday power into the PJM West market point added $4.22 to $43.50/MWh.

Gas for delivery Wednesday at the Algonquin Citygates jumped 93 cents to $6.30 and gas further upstream at Iroquois Waddington shed 2 cents to $4.05. Gas on Tennessee Zone 6 200 L jumped 92 cents to $6.21.

For much of the country turbulent, unsettled weather prevailed. Kari Kiefer,Wunderground.com meteorologist, reported that "Stormy conditions will pick up over the Northwest corner of the country on Tuesday as a frontal boundary moves over the region. Showers can be expected across Washington, Oregon, Idaho, Nevada and northern California. Snowy conditions will impact the Cascades, the northern Rockies and the northern Sierra Nevadas on Tuesday. The Southwest will stay clear of wet weather as a high pressure system builds over Baja California.

"A separate cold front will inch across the Intermountain West and the northern Plains on Tuesday. This front will interact with a warm southerly flow from the Gulf of Mexico to produce showers over the Mississippi Valley and parts of the southern Plains."

Gas for delivery Wednesday on Dominion was unchanged at $3.29, and deliveries to Tetco M-3 slipped 4 cents to $3.64. Packages to Tennessee Zone 4 Marcellus added 31 cents to $2.98, and gas bound for New York City on Transco Zone 6 fell 3 cents to $3.76.

Elsewhere, major trading points shed about a dime. Gas for Wednesday at the Chicago Citygates fell 7 cents to $3.66, and deliveries to the Henry Hub dropped 9 cents to $3.62. On El Paso Permian, next-day deliveries came in 7 cents lower at $3.47, and at the SoCal Citygates Wednesday packages were seen 11 cents lower at $3.81.

Futures prices retreated as the dominant price driver continues to be the weather. Forecasts show a tempering of the cold expected in the near term lending further credence that prices are likely to be bound by a $3.50-3.70 trading range near term.

Longer-term weather forecasts overnight Monday turned slightly warmer. WSI Corp. in its Tuesday morning 11- to 15-day outlook showed normal temperatures throughout most of the United States with some below-normal temperatures in the Dakotas and above-normal temperatures in limited parts of Southern California. Tuesday's "forecast has trended slightly warmer over the Midwest and East, but cooler over the interior West and northern Plains late in the period. Confidence remains slightly below average as models continue to express a great deal of uncertainty heading into early December," the forecaster said.

Risks to the forecast include a "developing high-latitude ridge over the North Pacific...shifting the cold risk to over the interior West and central U.S. under a favorable pattern for a digging cold trough. This would now promote slight warm risks for the East mid-to-late period if warm southerly flow develops."

Analysts see the market primarily focused on weather developments and see risk to the upside. "This remains largely a weather-driven market, and we are currently viewing the temperature factor as bullish. Although much of the broad-based cold trends that now stretch into the first week of December were discounted by the market late last week, we feel that some additional institutional short-covering will be boosting values as this week proceeds," said Jim Ritterbusch of Ritterbusch and Associates.

"Even allowing for the usual pre-EIA positioning that can prompt sizable price swings in both directions, we feel that response to this week's storage figure is apt to be to the upside even allowing for a possible smaller than expected figure. We look for a supply decline that would be larger than the five-year averages, with the implied reduction in supply surplus against normal levels maintaining a bid under the market.

"We were surprised by the aggressive selling on the part of the money managers, etc. within the latest COT [Commitments of Traders] reporting period, an entry into the short side that developed even as nearby futures were lifting higher by more than 4%. While speculative entities may have been emboldened by [Monday's] failure off of our anticipated resistance at the $3.70 mark, we are leaving open the possibility of a major short covering bout on a close above this level."

December Central Appalachian Coal Futures settled at $53.75/ton or $2.34/MMBtu, down from $60.67/ton or $2.664 a year ago.

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