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Marcellus, Mid-Atlantic Gains Outgunned by Broad Declines; Futures Limp Higher

Next-day physical prices were mixed in Tuesday's trading, with gains in the Marcellus and Mid-Atlantic unable to offset losses in New England, the Gulf Coast, Midcontinent, Rockies and California. At the end of the trading day, the national average was unchanged.

Outside of New England, most losses were confined to about a nickel, and away from the Mid-Atlantic and Marcellus most gains came in at about a nickel. Futures managed to recoup a portion of Monday's losses with November adding 4.1 cents to $3.711 and December adding 3.5 cents to $3.800. The expiring November crude oil contract settled a dime higher at $82.81/bbl.

In the Marcellus, next-day prices rose as new processing capacity arrived on the scene in Ohio, thus sending regional prices closer to higher-priced markets in the Mid-Atlantic, New England and Great Lakes. Genscape said, "New processing capacity in Ohio has been instantly filled, highlighting the region's constraints on growth. MarkWest Energy Partners' Sherwood Complex IV expansion project came online Monday, Oct. 13, boosting the gas processing plant's operational capacity by 113 MMcf/d to a total of 709 MMcf/d. The Sherwood processing plant, located in Doddridge County, WV, processes gas primarily from its anchor producer, Antero Resources, and interconnects with Columbia Gas and DTI [Dominion].

"Outlet volumes from the complex processing plants has increased to 622 MMcf/d, demonstrating the region's ability to instantly fill new capacity and the need for more. Genscape unit SpringRock estimates Ohio and West Virginia production is currently averaging about 4.66 Bcf/d, a figure that is expected to grow by more than 20% annually for the next three years."

In an otherwise soft market, gas on Millennium for Wednesday delivery added 10 cents to $2.33, and deliveries on Transco Leidy added 17 cents to $2.30. Deliveries on Tennessee Zone 4 Marcellus gained 19 cents to $2.26, and gas on Dominion South added 15 cents to $2.38.

Gas bound for New York City on Transco Zone 6 added 25 cents to $2.62, and deliveries to Tetco M-3 rose by 16 cents to $2.48.

In New England, next-day prices tumbled as soft power prices gave power buyers little incentive to purchase incremental volumes. Loads were expected to change minimally as ISO New England predicted that Tuesday's peak power requirements of 16,030 MW would rise to 16,240 MW Wednesday and ease to 15,800 MW Thursday.

IntercontinentalExchange, however, reported that next-day peak power at the ISO New England's Massachusetts Hub fell $10.33 to $36.50/MWh.

Next-day volumes at the Algonquin Citygates shed 33 cents to $2.98, and gas on Iroquois Waddington fell 8 cents to $3.66. Parcels on Tennessee Zone 6 200 L were off by 45 cents to $2.99.

Across the broad PJM footprint, loads and prices held steady. The PJM Interconnection predicted that Tuesday's peak load of 31,856 MW would rise nominally to 31,927 MW Wednesday before receding to 31,281 MW Thursday.

IntercontinentalExchange said next-day peak power at the PJM West terminal rose 41 cents to $42.50/MWh.

Weather throughout the East is expected to be generally cool with temperatures below seasonal norms. Forecaster Wunderground.com predicted that Tuesday's high in New York City of 65 would slide to 58 Wednesday before slipping further to 56 Thursday. The seasonal high in New York is 62. Philadelphia's 69 high on Tuesday was seen dropping to 58 also and dropping to 54 Thursday. The normal high in Philadelphia for mid-October is 61. Washington, DC's Tuesday max of 69 was anticipated to drop to 61 Wednesday before making it back to 63 on Thursday. The normal high in Washington, DC is 67.

The National Weather Service in New York City said that "low pressure develops over the Delaware-Maryland-Virginia area...and then will meander south of Long Island through midweek. The low then tracks northeastward into the Canadian maritime provinces late this week and into the weekend. A cold front approaches Saturday...then crosses the area Saturday night. High pressure builds into the Middle Atlantic States early next week."

Gas in the Producing Regions softened. Deliveries to Transco Zone 3 fell 2 cents to $3.60, and packages on Columbia Gulf Mainline eased 5 cents to $3.54. At the Henry Hub, gas changed hands 7 cents lower at $3.61, and on Tennessee 500 L gas was quoted at $3.62, down 1 cent. At Katy, Wednesday gas came in a penny lower at $3.61.

Futures traders didn't see much significance to Tuesday's trading as the gains were on light volume and November was held to a minimal 7 cent range. They are, however, laying the cause of Monday's dime drop squarely at the feet of unsupportive weather. "[Monday's] big 2.6% selloff was mainly weather-driven as weekend updates to the temperature views advised not only an extension of mild trends into the first week of November but also mild patterns that stretch broadly across the entirety of the U.S.," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Monday.

"This, of course, conjures up images of additional above-normal storage builds that will likely be furthered on Thursday with the contraction against five-year averages narrowing by another 25-30 Bcf. With this dynamic still in place through the rest of this month and well into November, any meaningful price advances will require a significant shift in the temperature forecasts toward the cold side. Chart damage that has been gradually developing during the past week will also be keeping many speculative accounts away from the long side of the market until a price base over several trading sessions is achieved. From here, we see light support at the $3.66 level but with more important long-term chart support failing to materialize until about the 3.40 area.

"While we view such a decline as out of reach, continued warmth through the first half of November could weigh on values by another 25 cents or so, especially with production exhibiting some unexpected strength. All in all, we have shifted into a neutral trading stance as we remain reluctant to follow this down move."

Others are card-carrying bears. Monday's price action was "continuing the trend for the moment with NOAA's six to 10s staring down above-normal temps for the majority of the consuming region (although New York/New England are on the cooler side)," said Drew Wozniak, vice president at ICAP Energy. "If one reflects on this price action, there is a fundamental change in perception. It is that storage is less important than the fact that we can produce whatever we need. This is combined with the new pipelines going live the beginning of next month. My only reservation is that Mondays have tended to be strong, but longs are just looking tired, not willing to put up much of a fight and many have capitulated...still a bear."

Weather forecasts aren't getting any more helpful. In its Tuesday morning six- to 10-day outlook, WSI Corp reported a large ridge of above-normal temperatures extending from Illinois west to Wyoming and as far south as Texas. "[Tuesday's] forecast is warmer than previous forecasts across the eastern U.S., but cooler or not as warm across the West and north central U.S. This is due in part to the day shift and model trends.

"Forecast confidence is considered near average based on reasonably good model agreement early in the period. However, models diverge with the details as the period progresses, which hampers confidence during the back half of the period. There are risks in either direction during the end of the period. The greatest risk is to the cooler side along the East and West Coasts, as well as Texas. The interior West, Plains and Midwest may run a bit warmer."

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