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Weekly NatGas Cash, Futures Race Each Other Lower

For the week ended Nov. 4 both weekly natural gas cash prices and futures fell hard and fell often. The decline of 25.6 cents in futures for the week ended Oct. 28, as it turns out, augured not only declines in cash prices, but futures as well.

The NGI Weekly Spot Gas Average retreated 33 cents, and only a few points outside the Northeast and Appalachia managed to escape the barrage of selling with many points losing 50 cents or more. Of the actively traded locations the point showing the week's greatest gain was Tennessee Zone 4 200L, rising 33 cents to $1.69, and the biggest loser was gas at the Algonquin Citygate skidding $1.07 to $2.07.

Regionally, only Appalachia made it to positive territory, posting a 20-cent advance to $1.62, and the Rocky Mountains fell into last place with a loss of 47 cents to $2.04.

The Rocky Mountains fell 47 cents to $2.04, California shed 46 cents to $2.30, and the Midwest came in 44 cents lower at $2.27.

The Midcontinent dropped 43 cents to $2.18, and East Texas and the Northeast both fell 37 cents to $2.33 and $1.96, respectively.

South Texas gave up 36 cents to $2.30, South Louisiana lost 31 cents to $2.32 and the Southeast was down 23 cents to $2.27.

December futures tumbled 33.8 cents to $2.767.

On Thursday the Energy Information Administration (EIA) reported working gas inventories rose by 54 Bcf, slightly less than market expectations, and at first futures prices made nominal gains. Subsequent trading saw the market retreat but not at the frenetic double-digit decline seen earlier in the week. At the close December had fallen 2.3 cents to $2.769 and January was off 2.9 cents to $2.949.

The modest 2 Bcf smaller differential to market expectations was enough to send December futures higher once the EIA announced weekly storage figures. The 54-Bcf storage injection was about 2 Bcf less than what surveys and estimates by traders and analysts were expecting. December futures reached a low of $2.788 immediately after the figures were released but by 10:45 a.m. December was trading at $2.808, up 1.6 cents from Wednesday's settlement.

"The market seems to be trying to find some base," a New York floor trader told NGI. "I look for some sideways movement in here with some scale-in buying with caution. Now that we are down here, there is a little caution in finding support."

"The 54 Bcf refill was slightly below the median expectation and less than the 62 Bcf five-year average, and so at least modestly supportive on a seasonally adjusted basis," said Tim Evans of Citi Futures Perspective. "At the same time, we don't think this will change the market's recent bearish dynamic, with the forecast for warmer-than-normal temperatures still pointing to weak early season heating demand and further storage injections in the weeks ahead."

The analytical corps at Wells Fargo had estimated an injection of 59 Bcf and also saw the storage build below consensus ... "2 Bcf below last year's mark of +56 Bcf and 2 Bcf above the 5-year average of+ 52 Bcf. ... , absolute storage levels had retraced the majority of the 693 Bcf surplus over the 5-year average in April, to a current surplus of just 121 Bcf. The 5-year average pace for next week implies +34 Bcf in storage build, which would bring absolute storage levels to 3.997 Tcf, just below the psychologically important 4 Tcf mark."

Inventories now stand at 3,963 Bcf and are 48 Bcf greater than last year and 173 Bcf more than the five-year average. In the East Region 1 Bcf was injected and the Midwest Region saw inventories increase by 15 Bcf. Stocks in the Mountain Region rose 4 Bcf, and the Pacific Region was unchanged. The South Central Region added 34 Bcf.

In Friday's trading buyers for weekend natural gas were nowhere to be found, and prices plunged. Only two points followed by NGI escaped the scythe of selling, and no points made it into positive territory.

The NGI National Spot Gas Average skidded 18 cents to $1.97, and many points fell 20 to 30 cents or more. Forecasts across the country called for weekend temperatures to be above seasonal norms. Futures managed to escape the carnage in the cash market and at the close December had eased two-tenths of a cent to $2.767 and January retreated 1.2 cents to $2.937. December crude oil continued to stumble giving up 59 cents to $44.07/bbl.

It was hard to motivate buyers when weekend weather conditions were forecast to be ideal for college football, but for space heating? Not so much. Forecaster Wunderground.com predicted that New York City's Friday high of 61 degrees would ease to 60 Saturday before dropping to 53 Monday. The normal high in New York is 58. Chicago's 61 maximum Friday was seen rising to a balmy 67 Saturday and giving up just 2 degrees Monday to 65, 10 degrees above normal. Dallas' Friday high of 75 was anticipated to moderate to 74 Saturday and fall to 68 Monday, 4 degrees below normal.

Major market hubs across the country took it on the chin. Gas at the Chicago Citygate changed hands 16 cents lower at $2.12, and deliveries to the Henry Hub dropped 17 cents to $2.19. Gas at Opal fell 19 cents as well to $1.86, and packages at the PG&E Citygate came in 11 cents lower at $2.43.

Marcellus points suffered as well. Gas on Dominion South retreated 20 cents to $1.37, and packages on Tennessee Zn 4 Marcellus were quoted 14 cents lower at $1.37, and gas on Transco-Leidy Line shed 20 cents to $1.35.

Keep a sharp eye on the NGI REX Zone 3 Tracker as additional expansions from east to west unfold. Capacity is currently 1.8 Bcf/d and by the end of the year that is expected to rise to 2.6 Bcf/d, with likely shifts in Marcellus and Utica pricing.

Tallgrass Energy added a new receipt point to Zone 3 of Rockies Express Tuesday (see Daily GPI, Nov. 3). The point, referred to as Dominion/REX Clarington (non-Tenn) Monroe, flowed nearly 10 MMcf/d Tuesday and the point has a operating capacity of 267 MMcf/d, thus flows equate to a minuscule 3.7% of capacity. The point is part of the ongoing expansion of REX Zone 3. While receipts at Dominion/REX Clarington (non-Tenn) Monroe currently account for just 0.6% of total receipts into Zone 3 it is likely that receipts there will ramp up considerably going forward.

Short-term weather over the Midwest isn't likely to change much. The National Weather Service reported that "a ridge of high pressure stretches from the Central Plains into the eastern Great Lakes [Friday] afternoon and will settle south over the Ohio Valley tonight while a weak trough moves east across Ontario. Southwest winds into the 15 to 25 knot range will persist across Northern Lake Michigan through late this evening ahead of the trough, then should diminish overnight into tomorrow as high pressure reasserts itself over the area."

Longer-term weather models find consistent solutions elusive and forecasters call for ongoing relative warmth. "Regarding the latest overnight weather data; no major changes with cooling still expected into the east-central U.S. for mid-November, although the weather models continue struggling on exactly how much cold air will ultimately arrive," said Natgasweather.com in a Friday morning report.

"Essentially, the weather data keeps teasing cold is coming but then fails to convincingly prove it. As an example, the overnight 00z GFS operational solution showed another flip to a milder solution after a colder midday run, although its ensembles remain relatively chilly. This continues to highlight inconsistencies that has plagued the weather models the past few weeks.

"Until then, warm conditions will dominate much of the US the next 10 days besides the Northeast and West Coast where weak weather systems will arrive into next week with modest cooling."

Traders are moving to the sidelines. "[A] weak close and fresh low territory keeps this bear move much alive and it now appears that longer-term trend line support will be tested at the $2.62 area within the next two to three sessions," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Thursday.

"The only development that would alter this scenario would be a shift in the six-14 day temperature picture toward colder than normal patterns later this month. But such a development isn't showing up on the radar at the present time and as a result, some further sub-normal accumulation of HDDs may still require discounting.

"We continue to caution against attempts to pick a bottom to this dramatic 20% price decline that has developed unusually fast for the shoulder period. But at the same time, it is too late to participate in this down move from the short side for new position type trades. We have also shifted back to the sidelines."

One factor that is on traders' radar is continued, albeit small, additions to the roster of oil and gas drilling rigs. Three U.S. natural gas rigs were added to play during the week ending Friday, according to Baker Hughes Inc. But drillers still show a preference for the black stuff, as nine oil-directed rigs came back.

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