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Midwest, California Strong; Futures Back Off Four-Month High

Natural gas prices on Tuesday added 6 cents on average for Wednesday deliveries as gains were widespread with only a handful of points slipping into the loss column. The Midwest and California were particularly firm, but most Northeast and East points posted solid gains as well. At the close of futures trading, November had eased 3.0 cents to $3.790 and December was down by 3.1 cents to $3.935. November crude oil fell $1.20 to $101.21/bbl.

Midwest buyers were holding off waiting for lower prices. "Michcon restricts how much we can buy for our customers, but we are just waiting for lower prices," said a Great Lakes marketer. We also have a customer on Consumers who would like to buy more for his operations, but he has injection limits imposed upon him by the utility. Nonetheless, we will be buying for him."

"We could only buy 20 Dth today on Michcon, but that was all we were allowed. We paid $3.88," he said.

Quotes on Alliance rose a nickel to $3.92, and gas at the Chicago Citygates added 7 cents to $3.94. On Consumers, next-day deliveries were seen at $3.89, 6 cents higher, and on Michcon Wednesday packages changed hands at $3.90, up 6 cents. Deliveries to Dawn rose by a nickel to $3.95.

At East and Northeast points, higher next-day power prices provided a firm footing for higher spot gas purchases. IntercontinentalExchange reported that Wednesday peak power into the New England Power Pool's Massachusetts Hub rose by $4.92 to $41.67/MWh and at the PJM Interconnection West Hub next-day peak power was seen at $39.14/MWh, up $4.32.

Quotes at the Algonquin Citygates for Wednesday packages rose by 6 cents to $3.74, and gas into Iroquois Waddington was off two pennies at $3.95. On Tennessee Zone 6 200 L, gas came in at $3.78, up 6 cents.

On Dominion, next-day deliveries changed hands at $3.50, up 2 cents, and on Tetco M-3 Wednesday gas finished at $3.51, down 3 cents. Gas bound for New York City on Transco Zone 6 added 12 cents to $3.61.

West Coast power generators utilizing gas-fired combustion turbines got some reprieve from tighter margins as next-day power prices rose. IntercontinentalExchange reported that Wednesday peak power at NP-15 rose by $3.39 to $42.14/MWh and peak power at SP-15 gained $2.48 to $45.26/MWh.

Gas for Wednesday delivery at the PG&E Citygates added 4 cents to $4.13, and at the SoCal Citygates Wednesday gas was quoted at $4.06, up 7 cents. At the SoCal Border Wednesday parcels were seen at $3.95, up 8 cents, and gas at the El Paso S Mainline rose by 7 cents to $3.96.

Futures opened higher as longer-dated weather forecasts turned cooler overnight. WSI Corp. in its Tuesday morning 11- to 15-day forecast showed expansive below-normal temperatures throughout the country. Only the West Coast, desert Southwest, South Texas and Florida were predicted to have normal temperatures.

"Temperatures continue to trend colder across the eastern two thirds of the nation under a highly amplified pattern, [and] forecast confidence is just average today as the latest medium-range ensemble model solutions show some increased uncertainty with the precise placement of a highly amplified cold trough across the eastern two thirds," the forecaster said.

"All signs continue to point to a significant cold risk over much of the eastern two-thirds of the nation. However, there's increased uncertainty in the timing and placement of the anomalous cold trough over the U.S. If the GFS [Global Forecast System] solution is correct, temperatures could run colder over the East and warmer over the northern Plains and interior West."

Analysts see the forecasts of cooler temperatures capable of expanding the year-over-year storage deficit, but according to Jim Ritterbusch of Ritterbusch and Associates, "the larger issue could be one of a lack of transparency since some upcoming EIA [Energy Information Administration] storage releases may be temporarily suspended due to the government shutdown [see Daily GPI, Oct. 15]. We feel that the temperature factor at this time of the year may be overemphasized as a bullish driver given much less HDD [heating degree day] elevation that would be the case in the dead of winter.

"Furthermore, lack of storm-related production disruptions within the GOM have provided a significant offset to the upcoming cool-down. However, we also see a market driven by shifting dynamics that are going to offer a significantly smaller end-of-season supply peak than had previously been expected."

All indications are that the EIA will not be publishing its weekly storage report Thursday, but John Sodergreen, editor of Energy Metro Desk, in his "early-bird" survey of 15 market players found an average estimate of 81 Bcf with a range of 70 Bcf to 99 Bcf.

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