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Nearly All Cash Points Retreat; Futures Suffer Technical Setback

Physical natural gas prices Tuesday for delivery Wednesday experienced broad and pervasive selling as a weak screen, expectations of sizeable storage builds, and no tropical activity pulled the plug on pricing. Overall, prices settled on average 8 cents lower, and virtually no points made it to the positive side of the trading ledger. At the close of futures trading, October had fallen 11 cents to $3.492 and November was down by 11.8 cents to $3.559. November crude oil fell 46 cents to $103.13/bbl.

Great Lakes marketers felt pleased that they were able to make up some of their monthly shortfall at near-index pricing. "The good news is that we bought for tomorrow at the price we would have gotten for September baseload gas," said a Michigan buyer. "We are going fairly strong on our bidweek purchases. We didn't buy much [Tuesday] on Michcon, but we did go strong on Consumers and paid $3.81, which is just about equal to our $3.812 bidweek price."

Temperatures throughout the Upper Midwest were expected to be right around normal. Wunderground.com predicted that the high Tuesday in Milwaukee of 66 would slide to 63 Wednesday before rising to 70 on Thursday. The normal high in Milwaukee is 68. Chicago's Tuesday high of 72 was expected to hold Wednesday before making it up to 75 Thursday. The seasonal high in Chicago is 72. Detroit was forecast to see its Tuesday high of 66 rise to 70 on Wednesday and Thursday. The normal mid-September high in Detroit is 67.

Kari Kiefer, Wunderground.com meteorologist, predicted that "parts of the upper Midwest will experience rainy conditions as a cold front moves southeastward from the Plains and toward the Great Lakes. Parts of the Dakotas, Minnesota, Iowa and Wisconsin can all expect wet weather in the forecast."

Gas for delivery Wednesday on Alliance fell 7 cents to $3.64, and at the Chicago Citygates, next-day volumes were seen at $3.64 as well, also down 8 cents. On Michcon, gas was quoted at $3.78, down 8 cents, and on Consumers, next-day packages came in at $3.80, lower by a dime. Gas at Dawn shed 8 cents to $3.90.

Next-day prices in California also retreated as weak power demand along with a soft pricing environment aided falling next-day quotes. The California Independent System Operator reported that Tuesday's forecast peak load of a soft 33,300 MW was forecast to fall to an even weaker 30,693 MW Wednesday.

IntercontinentalExchange said peak next-day power at SP-15 fell $3.90 to $39.76/MWh and next-day peak power at NP-15 dropped $2.85 to $39.50. Nearby power points also fell. Wednesday peak power at Four Corners dropped $3.12 to $32.63, and at Palo Verde peak next day power slid $1.45 to $33.57/MWh.

At Malin, gas was quoted for Wednesday delivery at $3.46, down 8 cents, and at the PG&E Citygates gas came in at $3.95, six cents lower. At the Socal Citygates, Wednesday parcels were seen at $3.74, lower by 7 cents, and at the SoCal Border Wednesday gas changed hands at $3.59, 9 cents lower. Deliveries on El Paso S Mainline fell 10 cents to $3.64.

High linepack in the Thoreau area of the San Juan Basin prompted Transwestern Pipeline to issue a high linepack same day alert day for Tuesday.

The ever-volatile Marcellus region showed that it can put up double-digit price moves in either direction on the same day. Gas for Wednesday delivery on Tennessee Zone 4 Marcellus fell 20 cents to $1.74, and at Transco-Leidy , which has been plagued by upstream outages due to scheduled maintenance, next-day volumes surged 19 cents higher to $2.52.

Most eastern points saw prices retreat. On Dominion, next-day gas changed hands at $3.40, 7 cents lower, and on Tetco M-3 gas for Wednesday delivery was quoted 7 cents lower as well at $3.58. Gas bound for New York City on Transco Zone 6 fell 10 cents to $3.67.

Market technicians saw Tuesday's losses as having broken important technical thresholds. "From a technical perspective, the soon to expire spot natgas contract has now breached the $3.58/MMBtu support level and seems to be setting up to enter a new lower trading range of $3.58/MMBtu on the resistance end with $3.515/MMBtu the new support area," said Dominick Chirichella, senior fellow at the Energy Management Institute in New York. "The late-summer rally has all but dissipated with prices now entering an area of trading that was in play during the early part of September."

Analysts see recent weakness as likely to generate further selling by funds and managed accounts. "With the shoulder period now evolving, the weekly storage data should provide a clearer indication of non-weather supply usage trends. We still view strength out of the Marcellus producing region combined with an apparent trough in gas rig counts as conducive toward renewed production strength that could see record levels established a month or so down the road," said Jim Ritterbusch of Ritterbusch and Associates.

"At the same time, gas-to-coal displacement is likely slowing seasonally and has been reigned in to some degree by the uptrend in gas pricing during the late-summer period. These various items have proven sufficient to force technical deterioration that is in turn, reviving selling interest by the large speculative community that was minimally deterred by this month's price lift."

MDA Weather Services in its Tuesday morning six- to 10-day outlook said it expected above-normal temperatures across the northern tier of states from Montana to Maine. "Some cooler trends were made to the Northwest, while changes elsewhere were generally small. The cooler look to the Pacific Northwest comes from a deeper inland penetration of a nearby trough as per the models. Mostly seasonal conditions are favored to persist across much of the South and East, while the most stable anomalous warmth remains focused along the northern tier. Confidence has fallen some, however, as model volatility has been on the rise the past couple of days. Still, at this stage, warm Pacific influences should outweigh cooler threats in the big picture."

Anomalous warmth notwithstanding the National Weather Service (NWS) in its forecast of cooling requirements sees virtually no cooling degree days (CDD) in major energy markets. For the week ended Sept. 28, NWS predicts New England and the Mid-Atlantic will have seen no CDDs, or one below normal for New England and six below normal for the Mid-Atlantic. The Midwest from Ohio to Wisconsin is expected to see nine CDD, or three above normal.

In its 2 p.m. EDT Tuesday report the National Hurricane Center reported no tropical activity in the Atlantic Basin. 

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