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Cash NatGas Waffles Higher, But Futures Give Up Recent Gains

Physical natural gas overall for Wednesday delivery moved little as advances in the East and Northeast were able to offset weakness in the Midcontinent, West Texas, San Juan and Rockies.

The NGI National Spot Gas Average rose 2 cents to $2.29, and eastern points gained close to a dime. Both next-day power and near-term temperature outlooks offered little incentive for either buyers or sellers. Futures prices slipped, with November sliding under $2.50. At the close November had dropped 3.7 cents to $2.498 and December was off 3.1 cents to $2.721. November crude oil continued the sharp losses posted Monday and retreated another 44 cents to $46.66/bbl.

Much of the physical market seems content to bide its time until the heating season kicks in. A marketing executive with a major interstate pipeline said, "a lot of the phone calls have stopped; the winter deals have pretty much been done, and people are getting the paperwork signed. We do have some new gas coming in so there will be some changes, but I don't think you will see any real [price] movement until November.

"Everybody is topping off storage, and we may see some upticks and moves, and I don't think there will be any moves on Nymex until there is some perception that there is going to be big demand because we've got plenty of gas in storage. AccuWeather is predicting kind of a mild winter with a heavy El Nino component."

As a trader once told NGI, "El Nino is Spanish for 'low gas prices.'"

Those in the exploration and production sector may look at the El Nino as El Nada should it materialize and send gas prices still lower.

Could the realignment of gas prices in the Marcellus and Midwest finally be taking place? Quotes at Marcellus points rose, but deliveries to the REX Zone 3 Expansion were flat. Gas on Millennium rose 17 cents to $1.07, and packages on Transco-Leidy Line gained 10 cents to 99 cents. Deliveries to Tennessee Zn 4 Marcellus changed hands 14 cents higher at 96 cents, and gas on Dominion South was quoted 16 cents higher at $1.14.

No such luck for delivery points on REX Zone 3. Deliveries to REX at the ANR interconnection in Shelby County, IN, were flat at $2.40 and deliveries to REX connection with Midwest Pipeline in Edgar County, IL, were also flat at $2.40. Gas at the NGPL interconnect in Moultrie County, IL, were unchanged at $2.39.

Gas at the Algonquin Citygate did manage a gain of 18 cents to $2.84, and gas on Iroquois, Waddington fell 6 cents to $2.57. Deliveries to Tenn Zone 6 200L gained 10 cents to $2.70.

Mid-Atlantic points were also stout gainers. Gas on Tetco M-3 Delivery rose 17 cents to $1.20, and gas bound for New York City on Transco Zn 6 added 4 cents to $2.44.

In the latest weather model runs, forecasters noticed a slight shift to more temperate conditions. Commodity Weather Group in its Tuesday morning report to clients said, "Slightly warmer changes to the Midwest and East for the six-10 day as well as from Texas to the Midwest for the 11-15 day lead to some slight demand loss estimates overall.

"The strongest cool push of the season so far is still expected to impact the Midwest and East later this week into the weekend with some lingering effects on Monday for the East Coast. While Boston should see 30s for lows (Sunday-Monday range), even NYC could dip close to those levels."

In spite of the market's recent trek above $2.50, analysts don't see any further gains. "This market is having difficulty maintaining some weather-driven price gains above the $2.50 level per nearby futures, and we now see downside risk exceeding that to the upside by a sizable margin," said Jim Ritterbusch of Ritterbusch and Associates in a Tuesday morning report to clients. Occasional cold spells will be inevitable going forward but will not be translating too much elevation in HDDs [heating degree days] during this fall period.

"With production still holding strong year-over-year gains in excess of 4% despite the past year's plunge in the rig counts, we feel that surprises within the weekly storage figures are more apt to prove bearish than bullish. As far as this week's data is concerned, we are expecting a 95 Bcf injection that would be proximate to last year's 96 Bcf increase but above the five-year average of about 87 Bcf. This implied additional increase in the surplus against average levels still represents a bearish dynamic in our view that will be limiting additional upside price follow-through."

Tom Saal, vice president at FC Stone Latin America LLC, in his work with Market Profile expects the market to test the September value area at $2.734 to $2.592. "Some buying pressure appearing to develop...looks like short-covering by professional speculators. Remember, only participating futures traders can influence the price of natural gas futures," he said in a Tuesday morning note to clients.

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