Cooler temperatures, continuing wide basis spreads and an early jump in near-month futures led many gas cash market observers to expect early Tuesday that it would be another day of daily spot increases, but averages actually ended the day down a few cents in most cases and the tide appeared to be turning on Nymex by the afternoon.

Cash prices showed wide trading ranges of 15-30 cents at many points partly because of the volatility on Nymex.

The trading range on November futures was 36 cents. The near-month contract ended the day down 7.2 cents to $5.475, and some analysts already were predicting futures could soon test support at $4.99 and eventually decline back to early October lows in the mid $4.50s.

This week’s storage report could provide a crushing blow to the market by showing the end of the year-to-five-year-average deficit. At 2,863 Bcf, working gas levels as of Oct. 3 were only 37 Bcf less than the five-year average. The range of market expectations for the injection in this week’s storage report is about 50 to 95 Bcf.

“This has potential to expose the price surge of the past week for the limited, short covering spike we believe it will be,” said gas futures analyst Tim Evans of IFR Pegasus.

Lehman Brothers analyst Thomas Driscoll said the 34 heating degree days last week versus the five-year average of 56 left a significant amount of gas on the market for continuing large storage injections. Driscoll is forecasting a 95 Bcf injection in this week’s report compared to 75 Bcf in last week’s report and a five-year average injection of 58 Bcf. A 95 Bcf injection would lead to a surplus of 12 Bcf compared to the five-year average, Driscoll estimated.

Although temperatures are falling this week, some analysts believe they are not dropping enough to put a significant dent in injections, particularly given the very strong economic incentives in the market currently.

“Temperature projections for this week are likely to provide ample gas for injections…,” said Citigroup analyst Kyle Cooper. “Based on the current supply/demand balance, unless temperatures are quite cold the first week of November, an injection in the first week, or even two, of November is quite likely.

“There is but one simple fact to consider in 2003. Storage changes are simply the difference between supply and demand, and injections in 2003 are the second highest on record and the highest on record since the middle of April. That supply/demand balance simply won’t disappear when the first cold arrives. Will it tighten? Most likely. However, unless the temperatures are exceedingly cold, withdrawals are likely to be quite bearish.”

A blast of cold air could surprise the market over the next few weeks. The National Weather Service’s latest six to 10-day forecast does show below normal temperatures for the entire eastern half of the United States.

Some Midwestern sources reported cooler temperatures making their way into the market already this week. “It’s definitely getting cold today in Michigan. I don’t think that it’s going to get out of the 50s and it’s threatening to rain, which it’s supposed to do, and it should be cool for several days. Last week was really warm, our Indian Summer I think. We are expecting the storage report this week to show a big build, but next week’s report should be a bit lower.”

Low temperatures are expected to be near freezing tonight in the upper Midwest and in the high 30s and low 40s from the Pacific Northwest across the Rockies and Plains and all the way through the Midwest.

The temperature changes and the volatility on Nymex led to some pretty wide ranges in the cash market Tuesday. “There were 20-30 cent trading ranges in the Gulf Coast,” said a marketer. “They were down initially, then came up and then fell back again. I’m still shaking my head over why it’s this high, considering the lack of demand and the large storage numbers. They just want to own it, I guess. They’ve been able to have their way. I think crude is really helping it a lot as well, being as high as it is. Crude is up about 27 cents right now. Gas has been following whatever trend crude has been giving it lately.”

Meanwhile, in most parts of the market, people were aggressively searching for storage space to take advantage of the spreads. “It’s all over the place today. It still does make sense to put gas in the ground if you can do it. A lot of the pipelines are full and a lot of them aren’t able to park, which tells me that their storage is full. I don’t think we will see any OFOs because the pipes have been keeping people on their toes. I think we already would have seen that if we were headed in that direction. They are cutting everything but firm right now. Fundamentally these prices just don’t make any sense. I would think they will come off quite a bit from here.”

Most Southwest points were trading $1 or more below next-month levels, said a regional marketer. “If you can find storage space that’s available then there is the opportunity to make some money there.” SoCal Border was up at least another nickel despite being up more than 20 cents on Monday from the weekend. Waha traded from about $4.50 to $4.80, a very wide range. “Until there’s true winter demand, it’s going to be volatile,” the marketer said.

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