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Cooler Temps Lifting Futures; December Called a Penny Higher

December natural gas is expected to open a penny higher Thursday morning at $4.38 as weather forecasts show ongoing cold temperature patterns and traders await a government report that is expected to show the first storage withdrawal of the season. Overnight oil markets were narrowly mixed.

In its morning six- to 10-day forecast, WSI Corp. predicts still colder temperatures ahead. "[Thursday's] six-10 day period forecast is colder than previous forecasts across much of the nation, except California due to the day shift and model trends. Confidence in the latest forecast is near, if not a bit below average, [and] there is good model agreement during the start of the period, but operational models continue to sharply diverge as the period progresses.

"There are risks in either direction at this time given the spread within the model guidance. The GFS [Global Forecast System] supports an upside risk over the West and a slight downside risk across the East."

The 10:30 a.m. EST release of inventory data by the Energy Information Administration is expected to show the first withdrawal of the season, but even with the early onset of winter, the pull is not expected to be close to last year. Estimates are coming in around a 10 Bcf withdrawal. Last year a stout 36 Bcf was withdrawn. The five-year pace stands at a 10 Bcf decline.

Increased production looks to be moderating the withdrawal. "Total demand came in at very similar levels to the same week last year; however, the expected withdrawal is significantly lower than the withdrawal from last year as year-over-year production growth of nearly 3.7 Bcf/d has helped temper the withdrawals this year despite record cold temperatures in the Rockies and Midcon region," Bentek Energy said in a report.

"Total demand increased 6.7 Bcf/d from the previous week and came in just shy of 71 Bcf/d at 70.9 Bcf/d, which is an increase of 11.1 Bcf/d above the previous four-week average. The East Region reported its first net withdrawal for the year while the Producing Region continued to net inject, concentrated within Bentek's sample of salt dome facilities. The majority of the cold reaching the dense population centers in the Midwest and Northeast did not hit until late in the storage week, adding some additional risk to Bentek's forecast."

The firm estimates a draw of 7 Bcf utilizing its flow model, and other estimates include ICAP Energy at a 14 Bcf decline and IAF Advisors with an 8 Bcf pull. A Reuters survey of 25 traders and analysts resulted in an average 12 Bcf withdrawal with a range of declines of 2 Bcf to 33 Bcf.

In overnight Globex trading December crude oil rose 9 cents to $74.67/bbl and December RBOB gasoline fell a penny to $2.0350/gal.

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