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Analyst Hints at $10 Gas; November Called Up 2 Cents

November natural gas is expected to open 2 cents higher Tuesday morning at $2.47 as traders digest moderate weather and expectations of continued large inventory additions. Overnight oil markets rose.

Natural gas markets do tend to repeat themselves, and technical oscillators can be useful tools. Tom Saal, vice president at FC Stone Latin America LLC, said, "In the immortal words of Yogi Berra, 'It's deja vu all over again!'" Physical market shorts should pay attention.

Utilizing monthly data, he pointed out that the present monthly oversold pattern on the stochastic looks similar to what happened in 1999 with a median price at 2.260, "then a year later, $10.00."

Then in 2008 a monthly stochastic overbought pattern showed overbought conditions with a median price at $8.200, "not a good technical signal to lock in several years. I believe the current natural gas futures market is more in a condition like [1999] than [2008]. Why wait till [2008] re-appears?"

Analysts in the near term see a delayed start to any seasonal price advance. "There were relatively minor revisions in the short-term forecasts over the weekend, with model consensus suggesting above-normal temperatures will dominate much of the country through mid-October," said Teri Viswanath, director of natural gas strategy at BNP Paribas, in a note to clients. "While the western states will likely experience the warmest weather, unseasonably mild overnight temperatures in the Midwest and Northeast should limit heating demand during the forecast period. Consequently, the benign weather outlook suggests to us that the weekly stock build should continue to rival year-ago levels through the balance of the month.

"Based on last week's interstate pipeline receipts, we expect EIA to announce another triple-digit inventory release this week with initial estimates suggesting a 102-Bcf build for the week ending Oct. 2nd. This compares to last year's 106 Bcf injection and the five-year average of 92-Bcf. More fall-like conditions over the past weekend should result in a slight week-on-week decline in storage injections, or a possible 92-95 Bcf inventory build for the week ending Oct. 9th. All told, the seasonal lift-off that normally occurs as the industry transitions into the heating season will likely be delayed given the continued mild weather."

Overnight weather models showed a slight bit of increased cooling and heating requirements. "Overnight models gain some slight demand," said Commodity Weather Group in its Tuesday morning forecast. "The latest models gained, thanks to a combination of minor heating and cooling degree day [CDD] gains. Changes were mixed in the models, and there is still considerable disagreement on the degree of possible cooling associated with a new spike of high pressure ridging toward far northwest Canada into the Alaska area," said Matt Rogers, president of the firm.

In overnight Globex trading November crude oil gained 7 cents to $46.33/bbl and November RBOB gasoline rose a penny to $1.3921/gal.

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