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Weekly NatGas Grinds Higher On Seasonal Warmth

Weekly spot natural gas trading reverted to a more traditional warmth-driven format for the week ending July 14. Prices rose at most market points with only a few western and California prices falling into the loss column, and the NGI Weekly Spot Gas Average added 9 cents to $2.74.

The market point showing the week's greatest loss was SoCal Citygate with a drop of 23 cents to $3.17 and the week's greatest gains were posted at Nova/AECO C with a gain of $C0.99 to $C2.35/Gj.

Regionally California was the only loser with a decline of 7 cents to $2.94, and the Northeast showed the greatest gains adding 33 cents to $2.66.

Both the Rocky Mountains and East Texas added 4 cents to $2.56 and $2.87, respectively, and the Midcontinent and South Texas both gained a nickel to $2.66 and $2.87, respectively.

South Louisiana rose 8 cents to $2.89, and the Midwest added 9 cents to $2.82. Both the Southeast and Appalachia posted double-digit gains with the Southeast rising 14 cents to $2.99 and Appalachia tacking on 15 cents to $2.22.

August futures made a double-digit gain of their own for the week by adding 11.6 cents to $2.980.

Futures markets struggled Thursday with a slightly supportive Energy Information Administration (EIA) storage report that failed to rally the bulls. EIA reported a storage build of 57 Bcf for the week ended July 7, and when the data was released prices barely budged. Analysts were expecting an injection of about 2 Bcf greater, but at the close August had fallen 2.4 cents to $2.961 and September was down 2.7 cents to $2.948.

The August contract did manage to squeak higher once the EIA reported a storage injection that was slightly less than what traders were expecting. The reported storage injection of 57 Bcf was about 2 Bcf less than consensus estimates,and once traders had time to digest the figures August futures rose to $3.009, but at 10:45 a.m. August was trading at $2.991, six-tenths from Wednesday's settlement.

Prior to the report traders were looking for a storage build not far from the actual figures. Last year 61 Bcf was injected and the five-year average stands at 72 Bcf. Wells Fargo calculated a 56 Bcf injection and Raymond James estimated a 65 Bcf increase. A Reuters survey of 24 traders and analysts showed a sample mean of 59 Bcf with a range of +43 Bcf to +65 Bcf.

"It wasn't a great surprise. We were hearing a 59 Bcf number," said a New York floor trader. "We really have to maintain above $3 if this market is going to do anything, and a one-day settlement over $3 is meaningless. The market has no steam at this point."

Tim Evans of Citi Futures Perspective saw the 57 Bcf increase "supportive compared with the 72 Bcf five-year average, but this was not what we'd call a surprise or a shock.  Mostly, the report just removes the risk of a storage surprise for another week."

The Wells Fargo Denver-based analytical team sees the market still undersupplied by 2 Bcf/d and "with hot temperatures forecasted for the next 2 weeks across most of the continental U.S., we expect the pace of storage injections to slow even further.

"Based on current weather forecasts as well as elevated power burn levels thus far in July (34.1 Bcf/d month-to-date versus 33.7 Bcf/d month-to-date in July 2016), our model projects a 76 Bcf cumulative storage build over the next three weeks. This would be substantially below the five-year average of 143 Bcf and would reduce the storage surplus to just 108 Bcf by the end of July."

Inventories now stand at 2,945 Bcf and are 289 Bcf less than last year and 172 Bcf greater than the five-year average. In the East Region 24 Bcf was injected, and the Midwest Region saw inventories rise by 20 Bcf. Stocks in the Mountain Region were greater by 6 Bcf and the Pacific Region was up 5 Bcf. The South Central Region increased 2 Bcf.

Friday's trading saw the Summer Doldrums out in full force for natural gas trading for weekend and Monday delivery. Modest gains in Appalachia, the Northeast, and Texas were offset somewhat by flat pricing at most other market points.

Most locations moved a few pennies either side of unchanged and the NGI National Spot Gas Average rose a penny to $2.71. Futures were equally lackadaisical with traders acknowledging ongoing heat, but not at a level to make a significant dent in supplies. At the close August had risen 1.9 cents to $2.980 and September was up 2.3 cents to $2.971. August crude oil made it five for five gains on the week, adding 46 cents to $46.54/bbl.

New England showed some of the stoutest gains with deliveries to the Algonquin Citygate rising 25 cents to $2.51. The National Weather Service (NWS) in southeast Massachusetts said Friday that the risk of showers and thunderstorms in the Boston area would increase from west to east into Saturday morning. "A drying and warming trend develops this weekend, especially for Sunday. Seasonably warm conditions and humid for early next week, along with the chance for scattered afternoon into evening showers and thunderstorms Monday through Wednesday," NWS said.

Other market points moved much less. Gas on Transco Zone 6 into New York City fell 4 cents to $2.37 and deliveries to Tetco M-3 rose 2 cents to $2.07. Gas on Dominion South was quoted a penny higher at $2.00.

Further west price movements were equally uninspiring. Gas at the Chicago Citygate changed hands a penny higher to $2.79 and gas at the Henry Hub was seen a penny lower at $2.93. Gas on El Paso Permian ticked a cent higher to $2.55, and deliveries to Panhandle Eastern fell a penny to $2.52.

Gas at Opal fell 3 cents to $2.58 and gas priced at the SoCal Citygate was quoted a nickel higher at $3.16.

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Physical traders may enjoy some price gains next week as demand is expected to show some modest restoration as temperatures warm according to industry consultant Genscape. The firm said its metrics show CDDs running above normal next week, climbing daily towards a high of 159 by next Thursday, about 27 CDDs above normal for this time of year.

"The bulk of the increases are expected to come from higher-population markets in the Northeast, Midwest, and West Coast. Accordingly, we have total Lower 48 demand forecast to average 63 Bcf/d during the work week, reaching a forecast high of 64.1 Bcf/d on the 20th. Power burns are forecast to crest 35 Bcf/d, but remain well shy of the season-to-date high of 39.3 Bcf/d established [Thursday]."

August natural gas opened a penny higher Friday morning at $2.97 as traders saw forecast weather sufficiently supportive to maintain at least a temporary price equilibrium. Overnight oil markets rose.

Little change was reported in overnight weather model runs. "The 6-10 day period forecast is generally warmer than yesterday's forecast over portions of the central and eastern US," said WSI Corp. in its morning report to clients. "The West is cooler." Continental United States population-weighted cooling degree days "are up 0.6 to 68.8 for the period, which are 12.8 above normal."

Inasmuch as agreement between weather models was considered good, overall forecast confidence is average with the evolution of the mid-high latitude flow and pulse of hot weather early in the period. "However, model spread and uncertainty with wet weather causes confidence levels to decrease as the period progresses."

"Nothing has really changed," said a New York floor trader. "We are still in the same ranges."

Another corner of the market which didn't change Friday was the weekly rig count. The U.S. oil and natural gas rig count held steady for the week ended July 14, while Canada gained back what it lost the week before and then some, according to data from Baker Hughes Inc.

The United States added two oil rigs for the week, while two natural gas-directed rigs left the patch. Canada, meanwhile, brought back 15 gas-directed rigs and one oil-directed, more than making up for the 14 rigs that dropped out the week before.

That left the total North American rig count at 1,143 as of July 14, up 16 week/week and more than double the year-ago tally of 542, according to Baker Hughes, which now is a unit of General Electric.

In spite of the generally warm weather forecast, "expected deviations from normal don't appear sufficient to support nearby gas futures much above the $3.00 mark for now," said Jim Ritterbusch of Ritterbusch and Associates. "But while [Friday's] trade is off to a soft start, we expect seller caution ahead of a weekend that could bring some significant adjustments to the one- to two-week temperature outlooks. The storage excess against five-year averages narrowed to 172 Bcf with yesterday's data with the overhang likely to narrow toward 150 Bcf with next week's numbers given this week's warm temps. But while yesterday's supply numbers offered some reinforcement to our near term bullish view, the market will require some additional hot weather beyond next week if our $3.12 upside price target is to be achieved."

Ritterbusch says he is holding on to a bullish outlook for now and his upside target is quite reasonable at just $3.12 per nearby futures. "Any bullish updates to the weather views this weekend could expedite price movement toward our target. But we will also note that the physical market is having difficulty gaining any bullish traction as it softened again yesterday back to below the 2.95 level amidst milder Midwest temperature patterns."

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