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Risk Managers Mulling Producer Hedges; October Called 9 Cents Higher

October natural gas is expected to open 9 cents higher Monday morning as weather forecasts call for significant warmth over key Midwest markets. Overnight oil markets fell.

MDA Weather Services in its morning six- to 10-day report to clients said, "Conditions remain quite warm across the eastern half, particularly in the Midwest through the first half under strong ridging aloft. Temperatures peak strongly above normal early and could approach records in spots. The pattern progresses eastward with eastern Pacific ridging pushing into the West Coast late and warming the area above normal after a cool first half, while troughing in the West gradually migrates toward the Midcontinent.

"The tropics remain an element of uncertainty with Hurricane Maria expected to track near the East Coast, although most models keep it offshore at this time.”

With the shoulder season in sight, analysts see prices retreating as the market may not have fully accounted for recent demand destruction. "We still feel that demand destruction outweighs production shut ins, which will ultimately drive the market lower," said Mike DeVooght, president of DEVO Capital in a weekend note to clients.

"We will probably see more demand destruction as a result of hurricane Irma. Florida is a large consumer of natural gas and we don't think that was reflected in [last] week's rally. Cooler weather in the South and Midwest is also bearish news for natural gas. This time of year we will continue to get big builds in storage in preparation for winter, and with the demand destruction the hurricanes have caused, we feel natural gas prices should not stay at current resistance levels for too long.

"On a trading basis, we continue to look for natural gas to revisit the bottom of its recent range in the near future ($2.80). We have started to take a look at adding producer hedges at current levels."

In overnight Globex trading October crude oil fell 32 cents to $49.57/bbl and October RBOB gasoline eased fractionally to $1.6605/gal.

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