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US Gas Futures Hit 11-Week High On Cool Weather Outlook

November 10th, 2010

NEW YORK (Dow Jones) – Natural gas futures rose Tuesday to their highest levels since August as cold-weather forecasts boosted expectations for gas-heating demand.

Natural gas for December delivery settled up 12.2 cents, or 3%, to $4.210 a million British thermal units on the New York Mercantile Exchange, the highest ending price for the benchmark contract since Aug. 19. The benchmark contract has climbed by 9.7% in the last four sessions as forecasts have pointed to cooler weather ahead in some major U.S. gas-consuming markets. The National Weather Service is predicting colder-than-normal temperatures for much of the country Nov. 14-22, the latest in a string of forecasts that have energized the downtrodden gas market.

Natural gas “has been undervalued for too long,” said Jimmy Tintle, a broker and analyst with Transworld Futures. “Natural gas may have turned the corner.”

Natural gas prices declined steadily for much of October, as temperate autumn weather resulted in little demand for gas-fired electricity for air conditioning and low gas-heating needs. Some traders have been waiting for heating demand to pick up before making bets that gas prices would rise, and futures spent much of last week bound in a narrow range below $4/MMBtu.

“We’ve gone through some base-building,” said Jay Levine, a futures trader with Enerjay. “We may still be in that process. I’m not one to say that it’s a straight shot up from here.”

Tuesday’s rally came despite expectations that a government report set for release Wednesday will show that U.S. natural gas inventories hit record highs last week. Analysts and traders surveyed by Dow Jones Newswires expect the
Energy Information Administration to report that 25 billion cubic feet of gas were added to storage during the week ended Nov. 5. If the estimates are correct, U.S. stockpiles will total 3.846 trillion cubic feet, above last year’s record high of 3.837 tcf. The past eight weekly storage injections have been higher than average, as strong production overwhelmed demand.

The EIA’s weekly gas storage report is scheduled for release at noon EST Wednesday, a day earlier than normal because of the Veterans Day holiday observed Thursday.

U.S. natural gas production in 2010 should show a 2.5% increase from 2009 levels, the EIA said in a separate report Tuesday. In its monthly short-term energy outlook, the EIA said marketed natural gas production should average
61.49 bcf a day in 2010, an increase of 0.2 bcf a day from October’s estimates. The statistical arm of the Department of Energy also increased its 2011 production forecast by 0.4 bcf a day, to 60.77 bcf a day.

FUTURES                   SETTLEMENT                   NET CHANGE
Nymex Dec                     $4.210                                 +12.2c
Nymex Jan                     $4.372                                 +9.3c
Nymex Feb                     $4.370                                 +8.5c

CASH HUB                   RANGE                 PREVIOUS DAY
Henry Hub                 $3.65-$3.89                $3.45-$3.69
Transco 65                 $3.78-$3.90               $3.51-$3.79
Tex East M3               $4.15-$4.35                $3.86-$4.00
Transco Z6                 $4.18-$4.55                $3.86-$4.05
SoCal                         $3.87-$3.96                $3.50-$3.68
El Paso Perm             $3.68-$3.79                $3.38-$3.50
El Paso SJ                 $3.58-$3.75                 $3.28-$3.33
Waha                         $3.70-$3.79                $3.40-$3.49
Katy                           $3.74-$3.87                $3.43-$3.61

_____

By Matt Day

Glossary Terms

Glossary Terms

Nominated Volume

The physical quantity of gas requested, typically in MMBtu/day, for a specific contract or for all contracts at a specific point.

Marketing Affiliate

A marketing company that has corporate ties to an interstate pipeline, an intrastate pipeline, or a local distribution company.

Energy Only Providers

Power marketers or other electricity vendors who provide and bill for only the energy component of the electricity consumed by the end-use customer.

Therm

A unit of heating value equivalent to 100,000 British thermal units (Btu).

Real Power

The component of electric power that performs work, typically measured in kilowatts (kW) or megawatts (MW)--sometimes referred to as Active Power.

Injection (Storage)

The process of delivering natural gas into a storage field for future delivery and use.

Price Ceiling

Statutory maximum lawful prices for various categories of natural gas, including gas destined for both the intrastate and interstate markets.

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