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November natural gas adds to upside on demand expectations

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November natural gas adds to upside on demand expectations

Novembernatural gas futures turned higher Tuesday, Oct. 4, in late buying on weatherforecasts that call for a near-term chill in the Northeast and a later returnto above-average temperatures across the bulk of the country. With thepossibility of both early heating and late-season cooling, modest weeklystorage injections are expected to continue and could threaten outlooks for afresh record-high inventory at the close of the building period.

The contractbegan the session on a downtick sinking to a $2.878/MMBtu intraday low, butreversed losses to a $2.968/MMBtu high and a settle 4.1 cents higher on thesession at $2.964/MMBtu.

Weatherforecasts from the U.S. National Oceanic and Atmospheric Administration pointto above-average temperatures engulfing the West and portions of the central,Gulf and portions of the Southeast regions in the six- to 10-day period, whileaverage and below-average temperatures affect portions of the Southeast,mid-Atlantic and Northeast regions that could drive early heating demand.

Later,the NOAA eight- to 14-day outlook shows above-average temperatures overtakingthe entire country.

Thecombined weather scenarios bolstered support for the November contract as themarket considers the extended slow rate of storage builds that included themost recent injection of 49 Bcf for the week to Sept. 23, which comparedagainst a five-year-average injection of 97 Bcf and the 99-Bcf build reportedfor the same week in 2015.

Forthe week to Sept. 30, analysts and traders are anticipating a build formingconsensus around 71 Bcf. Although a step up from the prior week's paltry 49-Bcfinjection, this will compare against the 95-Bcf five-year average injection andthe 96-Bcf injection reported for the same week in 2015.

Thetotal working gas supply that currently sits at 3,600 Bcf with storageoverhangs 90 Bcf above the year-ago level and 220 Bcf above the five-yearaverage storage level of 3,380 Bcf, would climb to 3,672 Bcf with an injectionat consensus, and cut the storage overhangs to 66 Bcf and 197 Bcf, respectively.

Acontinued slow pace of storage building threatens end-of-season storageprojections calling for a record 4,042 Bcf on Oct. 31.

Possiblesupport for a higher storage injection for the week to Oct. 14 is theapproaching Category 4 Hurricane Matthew, on track to move up the Eastern Seaboardlater this week.

At 2p.m. ET Tuesday, the National Hurricane Center reported Hurricane Matthewsituated about 65 miles east-southeast of Guantanamo, Cuba, and about 55 milessouth-southwest of the eastern tip of Cuba. Matthew is moving toward the northat approximately 10 mph and will move over the extreme portion of eastern Cubalater this afternoon, the NHC said. A turn toward the north-northwest isexpected by Wednesday, followed by a northwest turn Wednesday night. Thehurricane is expected to move near or over portions of the southeastern andcentral Bahamas tonight and Wednesday, and approach the northwestern BahamasWednesday night.

Interestson the U.S. East Coast are expected to be affected by the hurricane lateThursday, Oct. 6, when the storm reaches Florida and works its way up the coast.

Heavyrainfall and strong winds are expected to damage power infrastructure, causingwidespread outages that would clip demand for natural gas for power generationresulting in larger storage injections prior to a return of service.

Day-aheadtrades were done at higher values as markets responded to demand outlooks andnatural gas futures' gains.

TranscoZone 6 NY added a modest near 1 cent to an index near $1.05 and Tetco-M3 addedmore than 5 cents to an index at about 95 cents. Henry Hub traded about 1 centhigher to an index near $2.85, while Waha bucked the trend for a 1-cent loss toan index about $2.60. Chicago deals, in line with the broader trend, addedabout 5 cents to an index around $2.75. At the West hubs, prices slipped about1 cent at the SoCal Border and PG&E Gate to indexes near $2.65 and $3.25,respectively.

Market prices and includedindustry data are current as of the time of publication and are subject tochange. For more detailed market data, including our power,naturalgas and coalindex prices, as well as forwardsand futures,visit our Commodities Pages. To view detailed EIA Weekly Natural Gas Storagedata, go to our Natural GasStorage Page.