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Strong East, Northeast Lead Market to Double-Digit Gains; Futures Follow

Natural gas for delivery Tuesday rose sharply in Monday's trading as stout power-driven gains in the Northeast and East easily overwhelmed weakness in the Great Lakes and Midwest. Gulf locations were steady to a penny or 2 cents higher, and Rockies and California points gained anywhere from a nickel to well over a dime.

Futures managed gains, with November rising 5.7 cents to $3.916, and December adding 5.5 cents to $4.004. November crude oil shed 8 cents to $85.74/bbl.

New England points posted gains of $1.00 or more at some points, but gains of 50 cents and above were common up and down the East Coast. Unsettled weather and above normal temperatures had power users anticipating stronger loads. Next-day prices also jumped.

The New York Independent System Operator forecast that Monday's peak load of 18,997 MW would rise to 20,038 MW Tuesday and 20,439 MW Wednesday. In the Northeast, ISO New England predicted that peak loads at the Massachusetts Hub Monday of 15,800 MW would climb to 16,160 MW Tuesday and make it to 16,910 MW Wednesday. Across the broad PJM footprint, Monday peak power requirements of 32,011 MW were expected to jump to 34,632 MW Tuesday before climbing to 36,347 MW Wednesday.

Next-day peak power prices gained. IntercontinentalExchange reported that next-day peak power at the ISO New England Massachusetts Hub soared $13.03 to $45.20/MWh, and Tuesday peak power at the PJM West terminal gained $6.07 to $50.92/MWh.

Meteorologists across the Mid-Atlantic were looking at disturbed conditions.

"Temperatures will resemble that of mid-September in the New York City area through midweek before a disruptive storm system moves into the region,” said AccuWeather.com meteorologist Brian Lada. “Highs are forecast to reach the mid-70s on Tuesday and Wednesday despite clouds limiting sunshine each day. The warm afternoons will be followed up by mild nights with lows in the upper 60s, values that match the typical high temperatures for this time of year."

Next-day gas at the Algonquin Citygates surged $1.12 to $2.81, and packages at Iroquois Waddington gained $1.47 cents to $3.94. Gas on Tennessee Zone 6 200 L rose 81 cents to $2.93.

Gas bound for New York City on Transco Zone 6 added 66 cents to $2.03, and parcels on Tetco M-3 changed hands at $1.99, up 57 cents.

Appalachian and Marcellus points also gained. Gas on Transco Leidy rose 52 cents to $1.95, and quotes on Tennessee Zone 4 Marcellus were seen at $1.93, up 53 cents. On Millennium, gas for Tuesday delivery rose 51 cents to $1.99, and gas on Dominion South gained 56 cents to $1.97.

Across the Midwest and Great Lakes, next-day gas slumped as forecasters called for high temperatures right around the zero degree-day point (65). Wunderground.com forecasters said the Minneapolis high on Monday of 58 would rise to 64 Tuesday and Wednesday. The seasonal high in Minneapolis is 57. Chicago's rainy 67 high Monday was expected to drop to 65 Tuesday before easing to 60 on Wednesday. The seasonal high is 64. Detroit's 66 high on Monday was seen making it to 68 Tuesday before sliding to 65 Wednesday. The normal mid-October high in Detroit is 61.

Gas for delivery Tuesday on Alliance shed 5 cents to $3.83, and parcels at the Chicago Citygates fell 8 cents to $3.84. On Consumers, gas was quoted 3 cents lower at $3.86, and on Michcon, buyers were treated to a 7 cent decline to $3.88. Gas at Demarcation fell 3 cents to $3.82.

Next-day gas at West Coast locations jumped as traders factored in expected low storage. "California winter basis prices are showing remarkable strength on the expectation California storage inventories will enter winter with record low levels," said industry consultant Genscape Inc. "SoCal system wide storage as of October 10 is 114.8 Bcf, down 16 Bcf (12%) from same day last year and 12 Bcf (9%) from the five-year average.

“Based on five-year average summer- and October-to-date injections, SoCal end of October inventories project to be around 122.5 Bcf. This would leave end of October inventories for SoCal down 7.9 Bcf from end of October last year, and down 11.4 Bcf from the five-year end of October average. The expectation of the storage deficit is creating strength in the SoCal basis winter strip. On October 10 of last year, the SoCal basis 2013-14 winter strip was trading at 10 cents. Presently, prompt winter basis is trading at 24 cents.”

The consultant noted that PG&E inventories “are currently around 140.6 Bcf, down 46.5 Bcf (25%) from 2013 and down 20.5 Bcf (13%) from the five-year average. Historic injection rates suggest PG&E’s end of October storage inventory would reach 142.7 Bcf, a 47.3 Bcf deficit to last year, and 24.9 Bcf deficit to the five-year end of October average.

“October 10 of last year, the PG&E Citygate basis winter 13-14 contract was trading at 22 cents; on Friday the winter 14-15 basis contract averaged 50  cents," the firm reported.

Next-day deliveries to Malin rose by 7 cents to $3.79 and deliveries to PG&E Citygates added 6 cents to $4.38. At the SoCal Citygates, Tuesday packages were seen at $4.19, up 16 cents and SoCal Border quotes jumped 13 cents to $3.97. Gas on El Paso S Mainline surged 21 cents to $4.02.

Overnight weather forecasts Sunday turned cooler, although any significant impact on demand seemed unlikely. WSI Corp. in its Monday morning six- to 10-day outlook said the "forecast has trended colder across the eastern two-thirds, as well as CAISO, but has trended warmer over the interior West and northern Plains. Confidence in the forecast is considered near to slightly above average standards, thanks to good large-scale agreement through the period."

Risks to the forecast included cooler temperatures being "favored over the Northeast as models now depict a cut-off upper-level trough to lift northward early, phase with the mid-latitudes, and advect another cool air mass across the region."

The six- to 10-day period may be a little cooler, but immediate effects on heating and cooling requirements are expected to be far below normal. The National Weather Service (NWS) in its forecast for the week ended Oct. 18 predicted combined heating and cooling requirements would be well below seasonal norms in major energy markets. NWS expects combined heating and cooling degree days in New England to be 50, a stout 54 degree days (DD) below normal, and the Mid-Atlantic is seen enjoying just 34 DD, or 56 fewer than its mid-October normal. The greater Midwest from Ohio to Wisconsin is anticipated to endure 47 DD, or 48 fewer than its norm.

The Atlantic Basin remains active, although no impact is seen on natural gas infrastructure. In its 5 p.m. EDT report Monday the National Hurricane Center (NHC) said Tropical Storm Fay had dissipated and Hurricane Gonzalo was 20 miles southeast of St. Martin with up to 75 mph winds. NHC projected its path to be northward and then northeast toward Bermuda.

DEVO Capital’s Mike DeVooght said funds and managed accounts will be reluctant to pressure the short side of the market going forward. He advised end-users and speculative accounts to purchase January $4.20 call options and sell January $3.90 puts. For producers and those with downside market exposure, he is looking for the market to reach $4.50-5.00 before placing hedges.

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