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Temps are falling, prices are rising

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Since the expiration of the October contract at $3.023/mmbtu, the market has rallied sharply. From that close on Sept. 26, the market traded up to $3.611 on Oct. 12, before falling back on the Thirteenth to $3.486. The primary reasons for the rally are colder weather, which leads to more heating-related demand, and a shrinking rig count, which suggests a slowdown in supply growth. The market is fundamentally different than it was a few months ago. The massive year-over-year storage surplus is rapidly shrinking and will be virtually gone in a few weeks; the rig count is declining; and while winter weather forecasts look to be above average, the weather will almost certainly be colder than last year.

Storage now stands at 3.725 tcf, 6.8 percent above last year and 7.8 percent above the 5-year average. Total US storage capacity is 4.239 tcf and estimated end-of-season storage totals are 3.90 tcf.

Posted: October 17, 2013