Spot prices inched higher by a few pennies to a little more than a dime at most locations nationwide Monday compared to weekend levels, and basis tightened a bit with help from the 10.5-cent drop in near-month futures. But many observers still were left wondering how the huge basis chasm will be closed before the November contract goes off the board.

With Henry Hub cash trading in the mid $4.90s and November futures at $5.547, current spot prices are a massive 60 cents away from converging with the near-month futures contract, and the month is nearly half over.

“Once in a while you get a month where it just doesn’t happen,” noted a marketer in the Pacific Northwest. “It has a long way to go. Even meeting in the middle is a long way off. November can be one of those weird months where you step over or simply bypass convergence and just move on. It will be interesting to see how that plays out. Anyone with storage ought to be selling it right now. Mine is full. I wish I had even more room.”

Another observer noted a complete disconnect between technical trading on Nymex and the fundamentals, “or lack of fundamentals,” in the cash market. “There’s a little bit of cooler weather coming into the Midwest this week so we should get some demand, but probably not enough to displace storage injection demand. The economics for injections right now are extremely strong” with prices at $5.10-15 in Chicago and futures at $5.55, he noted.

“You can do rest-of-the-month right now at Henry at $4.99, which is about 56 cents less than the Nymex. There’s just not a lot of logic to that. If we follow the pattern that we’ve been following, the Nymex will come down during bidweek. The physical guys just don’t want to own it right now.”

A Midwest local distributor confirmed that demand was picking up a little this week because of the weather forecast, but she said it still is hard to justify supporting prices after they’ve risen so far without much fundamental justification. Chicago cash came from the low to mid $4.00s last week to $5.10-15 on Monday.

“We’re expecting highs [temperatures] in the 50s to low 60s this week, which is down from the 70s last week. But I don’t think the market can support prices where they are right now. In a $5.50 market, prices are still at unrealistic levels. I’m guessing futures will come down a lot, and cash might even come down some.”

The winter forecast for Chicago is for colder than normal temperatures, she added, and that has been somewhat supportive. “It’s all so speculative at this point. We have to plan for it being really cold, but we have enough storage available that we can handle large swings in the weather. If you plan for the worst and hope for the best, then everything works out okay. There’s certainly no reason to panic or even to be concerned.”

Storage is rising rapidly and people are facing increasing difficulty getting their gas off the pipe and into the ground as inventories. Tennessee reported limited storage injection capacity Monday. In California over the weekend, Pacific Gas & Electric Co. declared a high inventory operational flow order, which forced a significant amount of gas back up into Canada, leading to a tolerance change on TransCanada’s Alberta system Monday.

“AECO was down all weekend because gas is really packed into the system,” said a Canadian source. TransCanada declared a tolerance change to minus 4% to 0% Monday. “There’s a lot of gas trying to get into storage but we’re starting to get to the point where not all of it can,” he noted. “Without significant cold weather, storage is the only place left to put gas — there’s also a significant price incentive to put it there — but it’s rapidly being filled up.”

The high inventory situation in California also helped hold back Malin prices, noted one observer. “Rockies prices at Opal started around $4.45 and climbed all the way to $4.60. The Opal-Malin spread came in. I’m not saying anyone should be playing that spread, but normally you have Malin trading at a premium to any other points on Northwest Pipeline yet today Opal wanted to go above where Malin was. Part of that was Malin being depressed with the AECO numbers off. Malin was trading at $4.52-70.

“The operational flow order on PG&E’s system over the weekend was probably what started pushing gas back up at AECO and getting them out of balance,” he added. “I think this will all be straightened out by tomorrow and we’ll quickly be back to seeing spreads between AECO and Malin fairly close to variable costs maybe a few cents above.”

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