Natural gas futures support from Friday and chilly temperatures arriving in much of the East were enough to propel the cash market to gains at all points on Monday with some points in the Midcontinent and West gaining more than a dollar, while most eastern points recorded additions of 30 to 60 cents.

Traders on Monday were feeding off of a November natural gas contract that finished at $6.786 on Friday, up 8.3 cents on the day and 25.3 cents higher than the previous week’s finish. Cash traders will lack the same bullish influence Tuesday as the November contract on Monday dropped 4.5 cents to close at $6.741, which is more than a 20-cent discount to where the Henry Hub averaged for Tuesday delivery.

Western points were so strong Monday that a small minority of the locations failed to register $1-plus gains on the day. The Southern California Border and SoCal Citygate both recorded gains of more than $1.70 on the day.

Despite facing the first real cold of the season, eastern points recorded some of the smallest gains on the day. Both Transco Zone 6 NY and non-NY came in a few cents shy of half dollar gains, while Algonquin gained a couple cents more than two quarters.

The Midcontinent region recorded gains from approximately 20 cents to just more than $1. Despite the gains, some traders said the region is facing an oversupply problem and companies are having to break down the market “hour by hour.”

The national storage picture would appear to back up these claims. Working gas in storage stood at 3,277 Bcf as of Oct. 10, according to Energy Information Administration estimates. The larger-than-normal 79 Bcf build for the week ended Oct. 10 continued to reduce the deficit to last year’s levels while adding to the surplus over the five-year average. Stocks are only 87 Bcf less than last year at this time and 85 Bcf above the five-year average of 3,192 Bcf. With three reports left in the traditional injection season only 41 Bcf is needed weekly to bring supplies to a “comfortable” 3,400 Bcf, some traders note (see Daily GPI, Oct. 17).

Nationally there is almost 3.3 Tcf in storage, one Midcontinent trader said, adding that the current oversupplied situation in parts of the Midcontinent are especially bad. “We are in a pure defensive mode right now. Things are pretty tough in the belly of the country due to the fact that there is too much gas,” he told NGI. “We have a major problem with oversupply on our intrastate pipelines. There is no place for us to go and we are having to cut producers. The basic fact is that current supply is more than the market can handle, so the pipelines are bloated and we are having major issues as we battle the fires on a number of different levels. The interstate lines are fine because they can move the gas to the Chicago market area, where the gas is needed because it is getting cooler there.”

The trader said production cutbacks appear to be the only option to alleviate the system. “Going forward, this is really bad news for the market. The only real answer I see right now is for producers to cut back on their production. I know prices have still been pretty firm, but this landlocked gas can’t get anywhere. We don’t understand why the price is currently up, but we do understand that it takes time for these things to filter through to the market. It could take a few days before we find some real softness.”

The trader noted that temperatures in the Midcontinent are only exacerbating the oversupplied situation. “Temperatures are in the 70s and 80s, so we really don’t need air conditioning any longer and we are not in a situation where we need heating either,” he said.

Things are looking colder in the near-term, however. Over at AccuWeather.com, meteorologists are devoting much of their focus to a burst of early winter air into a number of regions of the country. “Watch for a dramatic change in the weather seven to 10 days from now,” warned John Kocet, a senior meteorologist with the firm. “During the 27th and 28th, a large upper-air trough will form over the eastern half of the nation. This will bring the coldest weather so far this season to the Midwest and East. In addition, just before the cold takes over, there is also a chance that a big storm will come up the Eastern Seaboard. This is one of those 50-50 deals right now, but I thought it was worth mentioning.”

Kocet’s coworker, Joe Bastardi, who is the firm’s chief long-range forecaster, spelled out just how cold it could be. “We could be looking at the coldest November since 2002 — admittedly the past few Novembers have been relatively warm,” he said Monday (see related story). “However, we could also be setting the stage for a cold December.”

With a month and a half left in the 2008 Atlantic hurricane season, the tropics remain mostly serene. The National Hurricane Center (NHC) is keeping its eyes on a nearly stationary area of low pressure located over the northwestern Caribbean Sea, but the system is currently only producing “disorganized” showers and thunderstorms. “Surface pressures are rising and development…if any…will be slow to occur,” the NHC said.

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