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Weather Outlooks Milder Still; November Called 7 Cents Lower

November natural gas is set to open 7 cents lower Friday morning at $3.07 as overnight weather model runs turn milder. Petroleum markets rose.

Weather models in the medium term turned warmer still. "[Friday's] 11-15 day forecast is warmer than the previous forecast over the southern and eastern U.S. The West is a bit cooler," said WSI Corp. in a Friday morning report to clients. "PWCDDs are up one for Days 11-14 but are only forecast to be 7.3 for the period. GWHDDs are down 2.9 and are now forecast to be 47.9, which are 23.5 below average. Forecast confidence is only average due to model spread during the end of the six-10 day period and some uncertainty with the evolution/persistence of the Pacific flow."

Analysts see a well supported market. "When looking ahead to next week, our preliminary expectation is for a build much in line with average increases. In other words, it appears that the supply surplus against average levels could hold at around 185 Bcf into next month with the beginning of the withdrawal season implying an approximate 5% supply cushion with which to accommodate colder than normal winter requirements," said Jim Ritterbusch of Ritterbusch and Associates in closing comments to clients Thursday.

"From here, we expect additional price slippage per nearby futures to about the $3.07 area as the money managers appear actively engaged again in re-establishing short holdings. But we will also note that sustaining declines below our expected support will be challenged at this anticipatory phase of the heavy usage cycle that is being accompanied by a much smaller peak supply than some estimates as high as 4.2 Tcf that were being widely mentioned just a couple of months ago. A swing in the temperature forecasts toward colder than normal temps could trigger a vigorous upside price response, and we still see high probability of a test of last week’s highs within the December contract.”

Gas buyers with the responsibility of making incremental purchases for power generation across PJM over the weekend should have their hands full. According to WSI, "A storm system will continue to traverse the power pool during the next one to two days, with rounds of rain and showers. This will lead to highly variable and changeable conditions [Friday], but the Mid-Atlantic will remain mild and humid with max temps in the 60s and 70s. Eventually a brisk northwest wind with gusts in excess of 40 mph behind the departing system will usher a much cooler, Canadian air mass into the power pool by Saturday.

"A north-northwest wind behind the aforementioned storm system and trailing cold front will lead to prolonged period of elevated wind generation through Monday. Output is forecast to range near 2-4 GW," WSI said in a Friday morning report.

In overnight Globex trading December crude oil rose 10 cents to $50.73/bbl and December RBOB gasoline added a cent to $1.4885/gal.

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