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Exuberant NatGas Cash Market Leads Futures Higher

Physical natural gas traded Monday for Tuesday delivery overall shot higher by an average 13 cents. All but a handful of points were solidly in the black and most locations posted double-digit gains. East, Northeast and Midwest locations were all strong. At the close of futures trading, November had added 4.4 cents to $3.820 and December was up by 3.7 cents to $3.966. November crude oil added 39 cents to $102.41/bbl.

Midwest locations posted double-digit advances as forecasters called for a cold and snowy winter.

AccuWeather.com in a report on highlights of the 2013-2014 winter said the Northern Plains and Upper Midwest should be snowy with an occasional blast of extreme cold.

"Though summerlike temperatures kicked off fall in some parts of the United States, winter -- with its cold and snow -- is quickly following," said AccuWeather.com staff writer Jillian MacMath. "The season will get off to a slow start in the Northeast with only occasional shots of cold early on. The northern Plains and the Rockies, however, will be bitterly cold at times and buried in snow.

"Across the Ohio Valley, the Midwest extending toward the central Plains, a wintry mix will accompany an active storm track. Farther north, across parts of the northern Plains and Upper Midwest, snow will be favored over rain, resulting in higher snow totals in December into January. Frequent arctic blasts will take aim at the Dakotas and Minnesota late in the season, leading to some extreme cold at times. In late December and into January, the Midwest may be in an ideal position for a big storm. Conditions could align to bring Chicago a winter storm in time for the holidays. Des Moines, Minneapolis, Omaha and just northwest of Kansas City can each expect above-normal snowfall this season," she said.

Buyers weren't wasting any time in spite of forecasts calling for normal temperatures at least until midweek. AccuWeather.com forecast that Chicago's high of 63 Monday would rise to 67 on Tuesday before dropping to 58 on Wednesday. The normal mid-October high in Chicago is 64. Milwaukee's Monday high of 60 was anticipated to reach 64 Tuesday and slide to 54 on Wednesday. The seasonal high in Milwaukee is 60. Detroit's high Monday was predicted to be 64 and reach 68 Tuesday before sliding to 62 on Wednesday. The normal high in Detroit this time of year is 62.

Gas was quoted at $3.87 on Alliance, up 13 cents and deliveries to Chicago Citygates rose 14 cents to $3.87. On Michcon next-day gas came in at $3.84, 12 cents higher and on Consumers Tuesday packages changed hands at $3.84, up 14 cents on the day.

East and Northeast points were firm as well. On Dominion next-day gas surged 13 cents to $3.48 and deliveries on Tetco M-3 gained 8 cents to $3.54. Gas bound for New York City on Transco Zone 6 added 7 cents to $3.49.

The National Weather Service in New York City reported that "high pressure across the region drifts east through Tuesday night. A cold front slowly approaches from the west Wednesday and Wednesday evening...then crosses the tri-state late Wednesday night and Thursday morning. This front then stalls to our south into the upcoming weekend as high pressure builds into the central Middle-Atlantic States. A weak cold front crosses the area late Sunday...followed by high pressure building in for next Monday."

New England also experienced stout gains. On Algonquin Citygates gas was traded 16 cents higher at $3.68 and gas into Iroquois Waddington rose 7 cents to $3.97. Deliveries to Tennessee Zone 6 200 L rose 12 cents to $3.72.

Eastern power generation margins slipped as next-day power prices either fell or treaded water. IntercontinentalExchange reported that power for Tuesday use at the New England Power Pool's Massachusetts Hub slid $2.19 to $36.75/Mwh and power at the PJM West Interconnect added 3 cents to $34.82/MWh.

Futures advanced on healthy Columbus Day trading volume. "Natural gas looks like it is well bid. We have seen a series of higher closes. People aren't pulling their offers, but the bidders have been more aggressive," said a New York floor trader.

His figures show support at "$3.75 on the downside and you have to break $3.855 on the upside. Beyond that there isn't much resistance until $4."

Technical analysts caution that stiff resistance may be just ahead. In a weekly letter to clients, Mike DeVooght, president of DEVO Capital Management, said, "Storage numbers were slightly bullish on Thursday with a build of 90 Bcf when 94 Bcf was expected. The hurricane season is coming to an end, and now we start to gear up for what some are saying is going to be a big heating season. However, we are still in a supply surplus when compared against the five-year average and also believe there is a big technical resistance around the $3.90 level.

"We will hold our short producer hedges. In crude oil, we are starting to see a more volatile basis market. As we continue to produce more gas in the East, traditionally an end-user market, the basis in those areas has been deteriorating, with some of these markets trading at discounts to the west."

DeVooght counsels trading accounts to hold on to a short November position initiated from prior months at $4.35 and to risk 25 cents on the trade. End-users should stand aside, and those at risk for lower prices should continue to hold a November-March strip at $4.50 to $4.60.

Others see limits to the price advance from a more fundamental standpoint. "Gas prices have now advanced more than 45 cents, or 13%, since last month's expiration day as traders shift their focus to the upcoming winter heating season and expectations of increasing industrial demand," said Addison Armstrong of Tradition Energy in a Monday morning note to clients. "But rising gas prices are likely to meet increasing levels of resistance in the coming weeks if sustained periods of cold weather fail to develop."

Near term weather forecasts continue to be supportive. Commodity Weather Group in its six- to 10-day outlook shows a broad ridge of cooler than normal temperatures extending from border to border and from Indiana on the east to Colorado on the west. "A powerful spike in ridging over the Gulf of Alaska, and nearby Western Canada is driving a cooler pattern shift over much of the Lower 48 starting this week and going through the 11-15 day," said Matt Rogers, president of the firm.

"While not as abrupt as last Monday's update, we are still generally seeing increases in national demand again this morning for the six-15 day. There are still detail challenges with individual cool fronts, and the models usually show the stronger cooling for the Midwest/Plains versus the East and South where cool air masses tend to weaken with progression. The latest Euro ensembles are cooler on the East Coast in the 11-15 day though, when normals are colder. The West Coast states are warmer at times, but no major anomalies are expected over the next two weeks, while the interior is cooler at times yet." 

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