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Moderate Temps Help NatGas Cash Market Take A Dive; Futures Advance

A convoluted weather pattern in the Northeast, mixed power loads and next-day prices, and a benign temperature outlook were enough to prompt $1-plus declines in New England in Friday's trading for weekend and Monday delivery.

Mid-Atlantic and Marcellus points posted stout double-digit losses. Producing region locations lost a couple of pennies of their own. Overall, the market dropped a dime. Always vigilant futures traders were looking further out and saw enough in the way of colder temperatures to prompt buying. At the close, November had advanced 10.7 cents to $4.039 and December was higher by 10.5 cents to $4.117. November crude oil continued its downward spiral losing $1.27 to $89.74/bbl.

Weather forecasters in New England had to sort out a couple of cold fronts, showers and thunderstorms along with a few periods of dry and cooler weather. The National Weather Service in southeast Massachusetts said, "a soupy mess of low clouds and fog lingers tonight [Friday], especially over eastern New England into Saturday morning. Remaining mostly cloudy and cool Saturday prior to a cold frontal passage around Saturday evening along and ahead of which a line of rain with embedded heavier showers and isolated thunderstorms are expected.

"Dry and cool weather follows on Sunday to close out the weekend. Milder weather returns Monday and especially Tuesday ahead of the next cold front. Another period of showers expected Tuesday night into early Wednesday with dry weather following for Thursday."

Temperatures along the Eastern Seaboard were forecast to hover right around normal. Boston's Friday high of 60 was seen warming to 65 Saturday before rising to 67 by Monday. The normal high in Boston in early October is 66, according to Wunderground.com. New York City's high on Friday of 70 was predicted to ease to 69 Saturday before making it back up to 70 on Monday. The normal high in the Big Apple is 68. Philadelphia's 73 maximum reading Friday was anticipated to slide to 70 on Saturday and inch back up to 71 Monday. The seasonal high in Philadelphia is 68.

Power loads across New York and PJM showed little change. The PJM Interconnection forecast that Friday's peak load of 31,280 MW would ease Saturday to 28,437 and by Monday peak loads were only nominally higher than Friday at 31,450 MW. New York ISO expected peak loads Friday of 18,777 MW and Saturday of 17,245 MW. By Monday peak loads were seen reaching 18,707 MW.

Monday peak power prices were mixed as well. IntercontinentalExchange reported that Monday peak power at the ISO New England's Massachusetts Hub fell $3.21 to $33.00/MWh and peak power at the PJM West terminal rose $2.37 to $41.38/MWh.

With conditions like this, who needs to buy gas? Not New Yorkers. Packages for weekend and Monday delivery for gas headed to New York City on Transco Zone 6 traded as low as $1.45 and finished with an average of $1.51, down 40 cents. Dominion South went quite a bit lower, with a low trade of $1.10, just a nickel higher than its December 1998 low of $1.05. Dominion South at the end of the day averaged $1.52, down 31 cents.

Gas at the Algonquin Citygates plunged $1.24 to $1.95, and deliveries to Iroquois Waddington shed 72 cents to $2.32. Weekend and Monday parcels on Tennessee Zone 6 200 L fell $1.04 to $2.15.

Quotes across the Mid-Atlantic and Marcellus were uniformly soft as well. Gas on Tetco M-3 fell 35 cents to $1.52, and parcels on Millennium came in at $1.55, down 32 cents. Gas delivered to Transco Leidy shed 40 cents to $1.51, and packages on Tennessee Zone 4 Marcellus dropped 36 cents to $1.43.

Producing zones lost a couple of pennies. Gas at Demarcation fell 2 cents to $3.94, and at the NGPL Midcontinent Pool weekend and Monday gas changed hands at $3.78, down 2 cents. At Northern Natural Ventura, parcels were seen at $3.86, down 4 cents, and on ANR SW gas fell a nickel to $3.72. On NGPL TX OK weekend and Monday deliveries lost a penny to $3.87.

A Rocky Mountain producer wasn't optimistic a cold winter similar to last year can elevate prices. "Even if it is as cold as last year, you still have production up over 4 Bcf/d. If everything stays the same and you have another 4 Bs a day coming out, I just don't see it. Even if Marcellus drilling goes to zero you still have 1,800 wells waiting for pipelines to come on," he said.

Nonetheless, top traders for the long term are cautious bulls. "Although selling was contained at about the $3.90 area, we feel that the storage number opens the gates for additional slippage to our expected low side parameter of $3.85. For now, the short-term temperature outlook appears slightly bullish but well discounted," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Thursday to clients.

"Additional selling from here of more than 8-10 cents will likely require some mild temperature trends that are not currently on the radar. We don't look for the large speculative entities to press the short side aggressively below today's lows with storage 11.5% below average and with at a time of year that favors seasonal strength. Tomorrow's COT report is apt to show a sharp cut in net non-commercial shorts given the approximate 25-cent price advance that developed during the latest reporting period.

"From a broader perspective, this still looks like a choppy trading affair within a price range that we have defined as about $3.85 to $4.20," Ritterbusch said. "We will look to approach the market accordingly while at the same time gradually establishing deferred bull spread positions as a longer-term strategy that could capitalize on a possible early start to a cold winter."

Weather forecasters for the near term are calling for cooler temperatures to make an appearance at the higher latitudes. Through the middle of next week Natgasweather.com said, "Cooler Canadian air continues to sweep across the northern U.S. along with heavy rains, strong thunderstorms, and even snowflakes into the coldest air. As this system tracks the Midwest and Northeast this weekend, overnight lows will drop into the 30s and 40s, driving early season heating demand. Southern California, including high population coastal cities, will see temperatures in the 90s to lower 100s as offshore winds strengthen. A fresh cool blast will arrive early next week for the north-central U.S. before warming occurs across much of the nation late in the week."

Tom Saal, vice president at INTL FC Stone, in his work with hedge accounts said that "call options strategies provide efficient win-win protection at reasonable cost." He noted that the November-March $4.30 call option strip was 17.5 cents bid at 19.5 cents offered in late Thursday trading.

The Labor Department in its closely watched September Employment Report indicated non-farm payrolls increased by 248,000, much stronger than expected. The unemployment rate fell to 5.9%, the first time below 6% since 2008. The Dow Jones Industrial Average gained 209 points to 17,010.

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