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Northeast NatGas Points Lead Wide-Ranging Advance; Futures Fumble

Gas for next-day delivery rose at nearly all market points in Tuesday's trading with the Northeast posting double-digit gains, and more widespread gains of a few pennies were seen in the Mid-Atlantic, Marcellus, and Appalachia areas. Other Producing regions were also solidly in the black. Overall the market added an average of 6 cents to $3.79.

In the futures arena November failed to breach an important resistance point and settled down 3.3 cents at $4.121. December eased 3.7 cents to $4.190. November crude oil plummeted $3.41 to $91.16/bbl.

Next-day gas prices in New England posted hefty gains as pipelines restricted flows even further, forecasters expected an incursion of cooler weather and power prices remained firm.

Algonquin Gas Transmission reported that it had restricted interruptible and secondary out of path nominations to 99% between its Cromwell and Burrillville compressor stations. Monday the restriction was at 92%. "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," the company said.

AccuWeather.com meteorologists reported that "fall air will erase the record warmth that has been gripping the Northeast, while chilly air is set to charge into the Midwest by week's end. The chilly air will follow a couple of potent storm systems taking aim on the North Central States.” The first system is expected to bring locally severe storms to parts of the Rockies and Plains through Tuesday, and the second storm will bring cool, drenching rain to the Upper Midwest.

"The autumn winds that follow that front will be noticeable as we have not had many events like this yet since the start of meteorological fall: Sept. 1," Elliot Abrams, AccuWeather.com meteorologist, said.

"While it will not get cold enough for snow around the Upper Midwest to the central Appalachians, there will be bands of angry looking clouds and rain downwind of the Great Lakes, known as lake-effect. By Saturday, [wind chill] temperatures may be held to the 40s much of the day around the Great Lakes and central Appalachians. By Sunday, [wind chill] temperatures may be in the 50s at times farther to the east."

In the near term temperatures across the East and Ohio Valley are seen close to seasonal norms. AccuWeather.com predicted that Tuesday's high in New York City of 71 would ease to 70 by Wednesday and hold for Thursday. The seasonal high in New York is 70. Pittsburgh's 71 high Tuesday was expected to rise to 73 Wednesday and 77 Thursday. The typical late September high in Pittsburgh is 68. Chicago's 56 high Tuesday was anticipated to jump to 66 Wednesday and reach 72 on Thursday. The normal high in the Windy City is 69.

Next-day power prices across the East were mostly steady. IntercontinentalExchange disclosed that peak Wednesday power at the ISO New England's Massachusetts Hub rose $2.73 to $45.82/MWh, but peak power at New York's ISO Zone G (eastern New York) eased $1.25 to $39.10/MWh. At the PJM West terminal next-day peak power weakened by $1.99 to $40.79/MWh.

Power loads in New England were expected to decline. ISO New England forecast that peak loads Tuesday of 16,540 MW would ease to 15,970 MW Wednesday and 15,610 MW Thursday.

Next-day gas at the Algonquin Citygates rose 30 cents to average $4.13 and deliveries to Iroquois Waddington shed a dime to $3.91. On Tennessee Zone 6 200 L next-day gas was quoted at $4.31, up 42 cents.

In the Mid-Atlantic gas headed for New York City on Transco Zone 6 rose by 6 cents to $2.12 and deliveries to Tetco M-3 rose 7 cents to $2.07.

Appalachia and Marcellus gas rose. Deliveries on Millennium added 3 cents to $1.98 and on Dominion South gas was quoted at $1.97, up 8 cents. Wednesday packages on Transco Leidy rose 5 cents to $1.94 and parcels on Tennessee Zone 4 Marcellus were seen a penny higher at $1.85.

Producing Zones were also strong. Next-day gas on NGPL TX OK added 7 cents to $4.04 and gas at Carthage was seen 6 cents higher at $4.00. At the Houston Ship Channel gas changed hands at $4.04, up 6 cents, and at Katy Wednesday parcels came in at $4.05, up 7 cents. At the Henry Hub gas for Wednesday delivery added 12 cents to $4.14.

A Rocky Mountain producer is not optimistic that prices will advance. "Bentek says November and December we've got 2 Bcf/d of new pipeline capacity coming out of the Marcellus. Maybe we can get a rally between now and then, but Bentek says there are 1,800 completed wells in the Utica and Marcellus waiting for pipelines."

"I just don't see $4 as sustainable. Maybe on a weather type occurrence or something, [and] Thursday's injection number is huge at about 105 Bcf. Total storage is less than last year, but that deficit is dropping like a rock," he said.

The Energy Information Administration reported Tuesday that total Lower 48 gas withdrawals had increased a stout 4.61 Bcf/d to 79.08 Bcf/d from July 2013 to July 2014.

Analysts question whether another series of winter price spikes may be on the horizon inasmuch as Producing Region output is decreasing, and pipeline deliverability for the most part remains configured to bring supplies from the Producing Region to markets in the Northeast. In all likelihood increased Marcellus capacity won't be able to make up a severe weather driven deficit.

"Until last winter, price spikes for spot gas deliveries had largely been relegated to just a few constrained Northeast trading points. This dramatically changed as gas utilities across the country scrambled to secure supplies to meet the surge in heating demand in January," said Teri Viswanath, director of commodity strategy for natural gas trading at BNP Paribas in a note to clients. "The resulting stampede for physical supplies lifted cash prices in every reporting region, with locations in the Northeast, Midcontinent and Midwest regions reporting new all-time highs. The cause of the coast-to-coast price spike was the systematic reduction in swing supplies. This year, with the Producing region remaining understocked going into the winter, another system ‘stress-test’ might develop."

Monday saw something of a weather-driven price spike Monday. "Although we had left open the possibility of an advance in the newly prompt Nov contract to the $4.16 area, we didn’t expect such a run to develop this early," said Jim Ritterbusch of Ritterbusch and Associates. "Strength is mainly weather driven as most forecasters are looking at significantly below normal temperature trends to begin later this week and extend toward mid-October in some cases. The elevation in HDDs [heating degree days] appears sufficient to stall the dynamic of deficit contraction that has provided the primary theme behind our bearish stance until recently. We have shifted to a neutral posture in anticipation of some wide price swings but with the market likely to show little change from the $4 mark a week or two down the road."

Forecasters are debating as to how much cold air will actually make it south. "The weather models are still struggling on just how much cold Canada air will be tapped by the next series of weather systems that begins to play out later this week over the northern US," said Natgasweather.com in its morning outlook. "The uncertainty is expected to lead to varying national temperature forecasts, especially after October 8th. As we have been mentioning, these cool blasts will drive stronger heating demand, but they aren’t exceptionally cold, at least when considering it in terms of standard deviations. So while we suspected this coming cooler pattern would generate market hype, it’s likely not quite intimidating enough to bring a sustained and prolonged rally."

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