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Milder Weather Prompts Cash Plunge, Futures Slide; December Off A Nickel

Natural gas for delivery Thursday fell 22 cents on average, but if the multi-dollar losses at New England points are factored out, the decline was a more modest 8 cents. Weather forecasts showing a warming trend pulled the plug on the bulls' aspirations and futures softened as well.

At the close of trading Wednesday, December had shed 5.1 cents to $3.566 and January lost 4.8 cents to $3.618. December crude oil rose 84 cents to $93.88/bbl.

Forecasters don't see the current cold gripping the Atlantic Seaboard hanging around too long. "The wave of arctic air that settled into the East and South Tuesday is not a sign of how the weather will play out for the balance of the month," said AccuWeather.com meteorologist Alex Sosnowski. "Temperatures will rebound from West to East later this week and will end with near- to above-average readings by the weekend for most areas from the Mississippi Valley to the Atlantic coast.

"The seeds of the warmup are already beginning over the northern Plains and will expand into the Midwest Wednesday and the Northeast on Thursday. The initial warmup in these areas will be accompanied by gusty winds, which will be rather harsh at first. By the weekend, high temperatures in the 50s will be common from the central Plains to the Ohio Valley and mid-Atlantic, with highs in the 60s over much of the interior South and a return of 70-degree readings along the Gulf Coast."

The warming is expected to be widespread. AccuWeather.com forecast that Wednesday's 38 high in Boston would clime to 48 Thursday and 55 by Friday. The normal high is 52. Washington, DC can expect its 42 high  Wednesday to jump to 56 on Thursday and 60 by Friday. The normal high in DC is 59 in mid November. Atlanta's 48 on Wednesday was predicted to reach 56 Thursday and 59 on Friday; the seasonal high is 65.

In New England, the forecasts of milder temperatures went hand-in-glove with lower electrical loads and weaker next-day power prices. ISO New England predicted Wednesday's peak load of 18,270 MW would recede to 17,970 MW Thursday and to 16,790 MW Friday.

IntercontinentalExchange reported that next-day peak power at the New England Power Pool's Massachusetts Hub tumbled $29.34 to $44.52/MWhm and at the PJM Interconnect's West Terminal Thursday peak power dropped $7.99 to $41.86/MWh. In western New York, NYISO's Zone A delivery point next-day peak power fell $7.50 to $55.00/MWh.

Gas for delivery into the Algonquin Citygates Thursday slid $4.00 to $4.78m and gas into Iroquois Waddington was down 38 cents to $4.01. On Tennessee Zone 6 200 L, next-day parcels fell $3.85 to $4.69.

Genscape reported Wednesday that New England imports via Algonquin continued to flow at maximum level at around 1.3 Bcf/d.

Gas on Dominion fell 6 cents to $3.25, and Tetco M-3 gas for next-day delivery fell 15 cents to $3.65. Gas bound for New York City on Transco Zone 6 shed 33 cents to $3.77.

A similar scenario unfolded in West Coast trading as lower power loads translated to weaker next-day power pricing and lower next-day gas prices. The California ISO predicted that Wednesday's peak load of 32,374 MW would drop to 31,014 MW Thursday.

According to IntercontinentalExchange, at NP-15 peak power for Thursday fell $2.32 to $43.69/MWh and peak power into SP-15 skidded $1.90 to $46.03/MWh. At COB power for delivery Thursday dropped $2.65 to $37.54/MWh.

Gas at Malin fell 7 cents to $3.57, while parcels at the PG&E Citygates were lower by 6 cents to $3.83. At the SoCal Citygates, next-day gas was seen at $3.86, down 5 cents. At the SoCal Border, Thursday gas changed hands at $3.70, down 6 cents. On El Paso S Mainline next-day gas came in at $3.75, off a penny.

Other major market centers were unable to escape the day's selling. Deliveries to the Chicago Citygates dropped a dime to $3.72, and at the Henry Hub, Thursday packages were seen at $3.68, 1 cent lower. Deliveries to Opal dropped 3 cents to $3.55 and on El Paso Permian next-day gas was quoted at $3.52, down 4 cents.

Futures traders are looking for the day's weakness to continue pending the outcome of Thursday's Department of Energy (DOE) Energy Information Administration storage report. "I look for prices to continue down to $3.48-3.50,” said a New York floor trader. “We should come in a little bit lower Thursday and see what happens with the [storage] number. I'm hearing a 21 Bcf build.”

Noon weather updates Wednesday showed a warming trend. 12ZModelRuns.com in both the GFS (Global Forecast System) and GFS Ensemble runs showed a significant warming trend developing in days 11 through 14.

Taking a closer look at Thursday’s natural gas storage report, most estimates are closely packed around the five-year average of a 19 Bcf build. Last year, 12 Bcf were withdrawn. IAF Advisors of Houston is looking for a 19 Bcf increase and a Reuters poll of 23 traders and analysts revealed an average build of 21 Bcf with an injection range from 2 to 33 Bcf. Industry consultant Bentek Energy calculates a 20 Bcf increase.

Analysts saw Tuesday's gains as an incentive for those holding short positions to cover and presumably send the market still higher. "It was the highest close for the market since Oct. 30 and puts pressure on anyone who sold short over the prior eight sessions to cover those positions," said Tim Evans of Citi Futures Perspective in comments Tuesday to clients.

"The push to a somewhat higher price level also suggests that worries over Thursday's DOE storage report for the week ended Nov. 8 may be easing. We've seen forecasts for as much as 30 Bcf in net injections, but think the consensus is closer to our own model's 23 Bcf forecast, and only modestly bearish compared with the 19 Bcf five-year average refill for this date. But a near average storage injection would just be a neutral prelude to a clearly bullish net withdrawal next week in our view."

Evans is currently long the December contract from Nov. 7 at $3.57 with a protective sell stop at $3.42 to limit risk.

The National Weather Service in its six- to 10-day outlook Tuesday showed above normal temperatures along the Eastern Seaboard and east of a line from New York state to Georgia and including Florida. Below normal temperatures are forecast for Texas, Oklahoma, Arkansas and Louisiana. In the West, above normal temps are expected for the Dakotas, Pacific Northwest and as far south as Southern California.

This represents a significant contraction of the warmer temperatures shown in Monday's six- to 10-day outlook on the East Coast, a shift of below normal temperatures in the southwest further east, and an expansion of western warmth which on Monday just included California.

Tom Saal, vice president at INTL FC Stone in Miami, in his work with Market Profile shows conditions in place for a market breakout higher.

According to Saal’s figures, Tuesday's 4 cent advance puts the market on an upward trajectory. "Look for the market to eventually test the 50% target $3.678 then 100% target $3.777," he said in a note to clients.

According to Saal, the monthly initial balance calculates between $3.379 to $3.578. Trading the Market Profile involves following market breakouts either higher or lower from the initial balance. With the December contract settling close to $3.62 the stage is now set for a test of the 50% objective higher ($3.678) and perhaps the 100% target ($3.777). Saal is not specific in his timing, but the $3.67-3.77 levels represent monthly breakout targets.

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