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Bulls Take a (Cold) Breather; December Seen 3 Cents Lower

December natural gas is set to open 3 cents lower Friday morning at $4.37 as traders await weather developments that could show changes from November forecasts, which for the moment are looking at near-maximum cold. Overnight oil markets rose.

In its morning 20-day forecast, WeatherBELL Analytics sees a brutal November with little chance of any measurable reprieve. "Its on! The fight for the coldest November in 50 years from the Plains eastward," said meteorologist Joe Bastardi.

"Snow [is] throwing its two cents in. Buy the ECMWF temperatures and ideas through 15 days, but be skeptical about any warming in its Weeklies thereafter. [The] battle will move to whether this can pull back for a while, or keep pounding away. Analog package split on this.

"I have chosen the coldest temperature option I can find, [and] confidence has been high all week and it's just as high now. This is a brutal attack and its not going to go quietly."

Significant snowfall could add to the cold. "The wild card of snow is now entering the picture. A three- to four-day snowcover is going to put even more downward pressure on temperatures, which the model has trouble resolving," he said. "It's one thing for snow in Ontario and the upper Midwest, quite another if the ECMWF [European model] and it's control run have their way, for it raises the specter of November ending as cold as it can get (the last two weeks) in the Northeast. This could be parallel with what happened in late November 1989, with a widespread white Thanksgiving (in our case the model is hinting at snow before Thanksgiving but it would drive temperatures even in the Northeast) to January levels for a few days."

As bullish as the weather outlook appears, analysts suggest not chasing the market higher. "Until the forecasts begin to shift in the direction of normal or mild patterns, some fresh price highs to around the $4.55 area would appear likely with a brief punch to above $4.60 possible by Monday if weekend weather updates stretch cold ideas into the final week of this month," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Thursday to clients.

"However, we are cautioning against following this rally as we still see an exceptionally strong production pace and an import lift that could accompany an increase in Canadian gas stocks of almost 1% last week. Meanwhile, this shot of cold air continues to pass through to a strengthening within the 2015 portion of the curve, and we would continue to suggest holding bull spreads such as long January 2015-short July 2015 for now."

Supply-wise, Ritterbusch said, "although another supply build could be forthcoming in next week's EIA release that could push supply to our previously estimated peak of 3.6 Tcf, the market appears much more focused on the upcoming cold spell that will almost certainly be forcing some sizable withdrawals within the EIA releases beyond next Thursday. Updates to the one- to two-week temperature views are looking even more bullish than yesterday with much below normal trends are still anticipated over a broad swath (roughly the eastern two-thirds) of the nation."

In overnight Globex trading December crude oil rose 60 cents to $78.51/bbl and December RBOB gasoline added 2 cents to $2.1486/gal.

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