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Physical Gas Inches Higher, But Futures Post Double-Digit Gains

Natural gas for delivery Thursday was unchanged on average in Wednesday's trading, but if the transportation-challenged points in New England were taken out of the equation, the overall cash market posted a gain of a nickel as most points nationally trended higher.

 At the close of futures trading, December had vaulted 11.8 cents to $3.674 and January was up 10.8 cents to $3.713. The expired December crude oil settled at $93.33/bbl, down a penny.

Northeast locations suffered multi-dollar setbacks, and eastern points were steady to lower. Gulf points were within a few pennies of unchanged. Midcontinent and Rocky Mountain points proved to be the day's biggest gainers.

A Florida buyer is looking for New York Mercantile Exchange prices to remain more or less at current levels. "We've seen prices go up the last couple of months, and I think they will stay here at least through December."

The buyer remarked that the Florida Gas Transmission Zone 3 basis, which historically has enjoyed about a dime premium, has been unusually narrow.

"We've seen the Zone 3 basis actually go negative. Henry Hub is going to come in about $3.625-3.63 and Zone 3 is going to be about $3.61-3.62. It's been interesting.

"We're in the game to find the cheapest gas possible, and what is happening is the other markets are creeping up so the gas isn't getting into FGT via those interconnects, so there is less gas.”

The buyer suggested buying the Zone 3 Pool “because it is cheaper than getting the [FGT] Zone 1 and Zone 2 in. The pool is the cheapest available gas. Zone 1, Zone 2, and Zone 3 are all about the same. There is no incentive to move gas down the pipe.

"Marketers will have transportation on other pipes, and if the demand on the [Tennessee] 500 Leg is more than what it is on FGT, they will take it away from FGT. In our case, we are not in the trading, remarketing game. We are just an end user."

Gulf points moved little. Gas for delivery Thursday on FGT Zone 3 was quoted at $3.63, up 2 cents, and deliveries to the Henry Hub came in flat at $3.62. Deliveries to Transco Zone 3 were seen at $3.59, also unchanged, while Tennessee 500 L packages came in at $3.56, up a penny. On ANR SE, next-day gas was seen at $3.53, up 4 cents.

Gas at New England and eastern points was mostly lower as temperatures were forecast to rise. AccuWeather.com predicted that Wednesday's high in Boston of 42 would reach 47 Thursday and 50 by Friday. The normal high in Boston for mid-November is 50. New York City's Wednesday high of 44 was expected to climb to 50 on Thursday and 55 by Friday. The seasonal high in New York is 53.

Gas at the Algonquin Citygates was quoted $1.67 lower at $4.63, and deliveries to Iroquois Waddington sagged a couple of pennies to $4.03. On Tennessee Zone 6 200 L, Thursday gas was seen at $4.65, down $1.56.

Gas on Dominion was seen at $3.29, unchanged, with deliveries on Transco Leidy flat as well at $3.23. On Tetco M-3, next-day gas fell 7 cents to $3.57, and gas headed for New York City on Transco Zone 6 dropped 8 cents to $3.68.

Forecasters predicted short-term mild temperatures in New York City followed by a cold front. "While temperatures will moderate through Friday and a big rain event is called off for Saturday, much colder air will sweep later in the weekend on gusty winds," said Accuweather.com meterorologist Alex Sosnowski. "Only spotty showers or a touch of rain is in the offing for Saturday as the first of two pushes of cold air arrive.”

With high temperatures near or above 50 degrees Thursday, Friday and Saturday, temperatures will be no higher than in the 30s Sunday and Monday, said Sosnowski. The wind chill “temperatures will be in the teens and 20s at times, factoring in wind and other conditions."

Midcontinent and Rocky Mountain prices firmed as a phalanx of cold Canadian air was expected to drive south through the nation's midsection.

"Air pushing down from the Arctic Circle is making its way into the Upper Midwest and will continue pushing south until it reaches Texas Thursday evening into Friday," said AccuWeatther.com's Samantha-Rae Tuthill. "With contributing factors such as the gusty winds that will accompany the temperature plunge, [wind chill] temperatures can be as low as the upper 30s for the weekend."

Gas for delivery Thursday on CIG Mainline rose 8 cents to $3.49, and deliveries to the Cheyenne Hub added 7 cents to $3.54. At the NGPL Midcontinent Pool, gas for Thursday changed hands at $3.54, up 11 cents, with gas on Panhandle gaining 6 cents to $3.34.

The first expected draw of the newly minted withdrawal season had analysts coming up with a wide range of estimates. Last year 36 Bcf was withdrawn and the five-year average is for a pull of just 2 Bcf.

IAF Advisors of Houston expects the Energy Information Administration to report a withdrawal of 45 Bcf from storage Thursday morning, while a Reuters survey of 24 traders and analysts had an average 33 Bcf, with a range of -15 to -42 Bcf. Bentek Energy forecasts a withdrawal of 43 Bcf.

Analysts see the market dueling between expectations of high seasonal demand offset by record production levels.

Addison Armstrong of Tradition Energy contends that the market has to "recoup losses made [Tuesday] while traders focus on forecasts for below-normal temperatures and increased heating demand across the East later this week. Gas prices have spent more than week see-sawing broadly around the $3.60 mark as record production levels and more than ample storage competes against expectations of increasing seasonal demand.

“Weather forecasts are little-changed from yesterday, with below- to well below-normal temperatures expected to set in across the East in the next couple days and then continue through the end of this month before warming during the first part of December."

Weather forecasters are grappling with model runs showing a potentially large-scale storm system in the six- to 10-day period. Commodity Weather Group (CWG) in its Wednesday morning report showed an expanding area of below-normal temperatures east of a line from North Dakota to New Mexico.

"The dynamic forecast guidance is still grappling this morning with a storm system for next week that travels through the deep South and then up along the Eastern Seaboard," said CWG President Matt Rogers.

"Depending on how all the energy comes together, this could be a big system, or it could be a faster-moving weaker event. But either way, the models at least agree on strengthening a secondary surge of cold weather that comes in behind it. This is leading to some demand gains in the Midwest and Southeast toward the end of next week, while the East is more mixed, but still cold.

“The 11-15 day still shows warming compared to the six-10, but the latest models are more reluctant to give up the ghost on Alaskan ridging, which means that warmer 11-15 variability may only be a transient story where more cold may follow,” Rogers added.

Before market bulls get too comfortable with expectations of load-enhancing cold, they will first have to deal with a near-term warm-up.

The National Weather Service (NWS) is forecasting below-normal heating requirements for the week in key markets. For the week ended Nov. 23, NWS estimates New England will see 151 heating degree days (HDD), 23 short of normal, and the Mid-Atlantic should endure 139 HDD, or 26 below its normal seasonal tally. The greater Midwest from Ohio to Wisconsin is forecast to experience 168 HDD, or 21 fewer than normal.

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