November natural gas futures managed to carve out a modest gain Wednesday as traders were expecting a bounce from Tuesday’s losses and brokers were locking in Rocky Mountain basis and buying protective put options.

November futures rose 2.4 cents to $4.904 and December gained 5.6 cents to $5.683. November crude oil fell $1.31 to $69.57/bbl on disappointing inventory figures.

Analysts were looking for prices to recover from Tuesday’s 10.7 cent loss posted by the November contract. Peter Beutel of Connecticut-based Cameron Hanover , said, “Every time we have had a selloff in this market, prices have bounced back immediately with renewed strength. We will be looking for that again today [Wednesday], although at some point, it will not work out like this. Still, if prices do sell off again today, we have to expect them to bounce back on Thursday, probably with even more vigor. There is nothing in Tuesday’s selloff to suggest that the bullish movement in this market has ended yet. And the cold weather predicted on Monday for next week is still expected, so traders are likely to find renewed reason to buy into this market ahead of what could potentially be a long, cold heating season.”

Cold heating season or not, risk managers recommend using a “tight” Rocky Mountain basis to minimize both outright price risk as well as basis risk for area producers. “The basis is still pretty tight [by historical standards], about minus 51 cents,” said a broker with DEVO Capital. “One of the hedge trades we are recommending is locking in the basis and then buying some put options right at the market. We are also looking at doing some collars such as a $5/$7.50 [buying a $5 put option and selling a $7.50 call] for the November-March period and paying 10 to 15 cents and also the $5/$8 collar for 15 to 20 cents.”

He added that “for a couple of months” the Henry Hub cash price was actually lower than prices paid on CIG pipeline, a major transporter of Rocky Mountain gas to Midwest markets. On Wednesday for Thursday delivery, the NGI index showed Henry Hub gas at $3.70 and CIG at $3.65.

The broker noted that the Rocky Mountain basis in the last couple of days had widened out. November-March Rocky Mountain basis is [minus] 71 cents bid at [minus] 62 cents offered, and it settled right about 63 cents under Tuesday.

In the near term the tightening of the Rocky Mountain basis may have weather developments at its core. Prominent weather forecaster Joe Bastardi of AccuWeather.com predicted that by this time next week Midwest energy markets will get their first dose of major cold and snow.

“The idea is that the trough that is bringing the iceman will spawn a wave on the arctic front that will start snow in the Front Range over the weekend and have them spread just north of I-70 early next week, so most of the big rust belt cities get their first snow of the season,” he said on his weather blog. He went on to say that “the snows should reach a peak, perhaps of a few inches, in the I-80 corridor Omaha to the mountains of western Pennsylvania in the Sunday night-Tuesday morning period, then shift a bit north after that into New England. I guess I would not be shocked if snowflakes were seen as far south as New York.”

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