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Near-Term Warmth Energizing Bears; December Called 8 Cents Lower

December natural gas is set to open 8 cents lower Monday morning at $2.24 as continued warm temperatures are forecast in important population centers for the next five days. Overnight oil markets fell.

"Going into the weekend, we were expecting warm high pressure to become established over the central and eastern U.S. to open the week in response to a colder than normal Pacific weather system dropping into the West with valley rains and mountain snows," said Natgasweather.com in a weekend update. "This is on track with warmer than normal temperatures setting up over the most important natgas demand regions of the Midwest and Northeast the next four to five days.

"The data also confirmed our expectations for the weather system over the West to exit late in the week through the central U.S., opening the door for colder Canadian air to follow across the northern U.S. this coming weekend (Nov. 7-8)."

Risk managers are beginning to test the long side of the market. "Natural gas continues to be pressured by moderate temperatures, mediocre demand and more than adequate supplies," said Mike DeVooght, president of DEVO Capital, in a weekend note to clients. "Also putting pressure on the gas market has been aggressive hedge selling in the deferred contracts as the market started to break the $3.00 level.

"As we look forward to the heat season, which can often be supportive to the gas market, demand expectations have been ratcheted lower because of the El Nino. On a trade basis, we have been looking for an opportunity to get long the natural gas market but have not felt like we have yet reached the bottom of this move. We started to buy the January contract as soon as it broke the $2.50 level."

In a weekly update, Wunderground.com meteorologist Bob Henson said, "Strong El Nino conditions remain in place. The weekly sea surface temperature reading, taken within the Nino 3.4 region near the equator, currently sits at 2.5 degrees C above average, the highest value observed to date during this event."

Tom Saal, vice president at FCStone Latin America LLC, in his work with Market Profile said he expects the market to test last week's value area at $2.363 to $2.243. "Eventually, look for the market to test $2.696-2.582 and $2.765-2.705," he said.

In overnight Globex trading December crude oil dropped 65 cents to $45.94/bbl and December RBOB gasoline skidded 2 cents to $1.3562/gal.

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