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Midwest Leads Broad Advance; Futures Hold Early Gains

Physical natural gas for Friday delivery on average rose 2 cents Thursday as most traders elected to put trades to bed prior to the release of typically market-moving storage data from the Energy Information Administration (EIA).

Gains were widespread, and most points traded a few cents above unchanged, with Midwest locations making gains and East and Northeast points showing mostly losses of a few pennies. The EIA reported a build of 90 Bcf, which was slightly below market expectations, and futures prices held on to earlier gains. At the close, November had added 4.4 cents to $3.723 and December was up 3.8 cents to $3.877. November crude oil gained $1.40 to $103.01/bbl.

A Midwest utility buyer reported that earlier shortfalls on Northern Border had temporarily skewed normal market differentials between Northern Natural Ventura and Demarcation. "It didn't really affect us, maybe locations in North Dakota and South Dakota," said the Nebraska utility buyer.

"It was just for four days, but it did create some pretty large spreads between Northern and Demarc. For us, it was a non-event. It didn't really hurt us at all, but we haven't seen spreads like that in ages. Normally, Demarc and Northern Natural Ventura trade flat to one another, but for the first four days of the month it was up to 15 cents.

NGI's Daily Gas Price Index for gas traded Sept. 30 for delivery Oct. 1 reported gas at Northern Natural Ventura settled at $3.75, up 32 cents, while Northern Natural Demarcation finished at $3.60, up 16 cents.

Those differentials are now back to normal. Gas for delivery Friday to Northern Natural Ventura was quoted at $3.64, up about a penny, and deliveries to Demarcation rose 2 cents to $3.65. Gas on Alliance was seen at $3.76, up 3 cents, and deliveries to the Chicago Citygates rose 2 cents to $3.74. Gas at the NGPL Midcontinent Pool added 6 cents to $3.65.

In the Northeast, next-day gas was seen lower by a few pennies. Algonquin Citygates changed hands at $3.64, down 2 cents, and deliveries at Iroquois Waddington rose by 5 cents to $3.99. Gas on Tennessee Zone 6 200 L shed four cents to $3.66.

On Dominion, gas for Friday delivery added 4 cents to $3.44, but on Tetco M-3 next-day gas came in at $3.59, down 2 cents. Deliveries of gas to New York City on Transco Zone 6 also fell 2 cents to $3.59.

Next-day power was mixed. IntercontinentalExchange reported that Friday power at the New England Power Pool's Massachusetts Hub dropped $2.91 to $34.49/MWh, but power into the PJM West Interconnection added 80 cents to $35.07/MWh.

The National Weather Service in New York forecast near-term load-killing rain. "Low pressure along the coast...near the border between North Carolina and Virginia...will drift slowly north through Friday before becoming nearly stationary. The low is then forecast to weaken over the weekend into early next week while drifting to the south. At the same time...high pressure to the north will build slowly south," the forecaster said.

Futures bulls saw most of Thursday's gains in the market prior to the release of supportive inventory data. Reports surfaced that veteran weather forecaster Joe Bastardi offered up a supportive weather forecast overnight. "Bastardi put out a pretty bullish blog last night based on the European model," a source told NGI. "Bastardi has been calling for a pretty cold winter because of a cool summer and other analyses. It looked like a big order went through this morning," he said. Bastardi is a principal with WeatherBELL Analytics LLC, a New York-based weather forecasting firm.

In addition to a changing weather mix, traders were closely watching the 10:30 a.m. EDT release of storage data by the Energy Information Administration. Last year 73 Bcf was injected, and the five-year average stands at 84 Bcf. This week's 90 Bcf build helped to whittle away at the deficit to last year and build upon the five-year surplus.

Storage currently stands at 3,577 Bcf and with four weeks remaining in the traditional injection season, 88 Bcf would need to be injected weekly to reach last year's record build of 3,930 Bcf, and 50 Bcf would need to be stored to reach an average 3,776 Bcf. This week's estimates were centered in the mid-90s Bcf area. IAF Advisors of Houston calculated a build of 92 Bcf, and a Reuters survey of 26 traders and analysts showed an average 94 Bcf increase. Bentek Energy's flow model predicted an increase of 87 Bcf.

The 21-cent leap on Monday and Tuesday was in part explained by seasonality and short-covering, but the Bentek estimate clearly stands at the bullish end of the spectrum. In a report Bentek said the low-side risk to this week's figures is in the East Region's estimate, as the drop in supply from Canada potentially impacted storage injections in the region more than what the drop in the sample shows. It added that its "production estimates for the region show an increase of approximately 0.1 Bcf/d from the previous week, but production in the region remained 0.3 Bcf/d below the previous three-week average."

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