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Cash Prices Hold Steady, But Futures At Critical Point, Analyst Says

Physical natural gas trading Friday for weekend and Monday delivery overall was flat in uninspired trading. With few exceptions, prices flip-flopped within a nickel of unchanged.

Gulf prices were able to make small advances, but major market centers showed no clear trend. At the close of somnambulent futures trading, September had given up much of Thursday's storage report-driven gains and settled 5.1 cents lower at $3.368, and October skidded 5.0 cents to $3.393. September crude oil added 13 cents to $107.46/bbl.

The weather outlook for major eastern locations gave buyers little incentive to lock in volumes when modern-day communications enables nearly instantaneous purchases via cell phones and pad-type devices over the weekend. Temperatures were beginning to resemble the shoulder season.

Brian Lada, AccuWeather.com meteorologist, said, "Dry weather will remain across the Northeast to close out the week and will continue into the weekend. This weather will last even longer for residents of New England, stretching all the way into the beginning of next week. In addition to the sunshine and dry weather, fall-like temperatures will continue across the region; making major cities like Pittsburgh, Philadelphia, Washington, DC, and New York City feel more like mid-September rather than mid-August."

AccuWeather.com predicted that Friday's high in Boston of 80 would slide to 78 by Sunday and rise to 84 on Monday. The normal high in Boston at this time of year is 80. New York City's Friday maximum, also of 80, was expected to reach 82 by Sunday before easing to 80 by Monday. The seasonal high in New York is 83. Chicago's Friday high of 81 was forecast to inch up to 82 on Sunday before making it to 85 on Monday. Chicago's normal mid-August high is 82.

Gulf points managed to stay in the black, though barely. Deliveries to ANR SE gained 2 cents to $3.25, and gas on Columbia Gulf Mainline was flat at $3.26. At the Henry Hub, weekend and Monday deliveries rose a penny to $3.35, and on Tennessee 500 L, parcels came in at $3.28, up 3 cents. At Transco Zone 3 gas changed hands at $3.29, up 3 cents.

Major market centers vacillated around unchanged. At the Chicago Citygates, weekend and Monday packages were down 2 cents to $3.39, and on El Paso non-Bondad, gas came in at $3.26, flat. At Opal parcels were seen at $3.20, down by 4 cents to $3.20, and at the PG&E Citygates gas was quoted at $3.65, up 2 cents.

Biggest movers on the day were the transportation and infrastructure-deprived points in the Marcellus. Weekend and Monday deliveries to Transco-Leidy Line were 55 cents lower at $2.04, and packages on Tennessee Zone 4 Marcellus were seen 38 cents down at $1.87.

Cash traders seemed unperturbed by tropical developments in the Gulf.

The National Hurricane Center in its 5 p.m. EDT report said the area of low pressure in the southern Gulf of Mexico had a 50% chance of developing into a tropical cyclone in the succeeding 48 hours (see related story). Tropical Depression Erin was 625 miles west northwest of the Cape Verde Islands and was moving to the west-northwest at 17 mph. Maximum sustained winds were down to 35 mph. Matt Rogers, president of Commodity Weather Group, characterized the low pressure as not being a significant system/threat and said it could become a weak tropical storm, but "a significant system/threat is not anticipated with the situation all clear likely by Monday."

Some companies weren't taking any chances. Enbridge Inc.'s Manta Ray offshore natural gas gathering company evacuated non-essential personnel from two platforms off Louisiana. Marathon Oil pulled some workers from its Ewing Bank platform in the Gulf as well.

Futures analysts see the market as at an important juncture. "The next few days of trading remain critical in defining the next price move for natgas," said Dominick Chirichella, a fellow with the Energy Management Institute in New York. "The spot contract has been in the current trading range for the last 10 trading sessions. If the market does not stage another pass at breaching the $3.415/MMBtu level, we could see prices retreating back toward the lower support level. As is always the case during the summer months, the short-term weather will remain the main price catalyst for the market."

In spite of Thursday's robust 8-cent advance, analysts see continued contraction in the one-year supply deficit and expansion of the five-year surplus as a continued price driver.

"Although [Thursday's] 65 Bcf storage injection prompted an upside response, it didn't deviate far enough from average ideas to induce major speculative short-covering. One reason for lack of upside follow-through thus far is simply the fact that storage injections remain elevated considerably against a year ago," said Jim Ritterbusch of Ritterbusch and Associates. "And even allowing for some warmer temperatures next week across the northern half of the U.S., supply injections should be able to exceed those of last year during the coming month and possibly beyond. At the same time, the newly established surplus against five-year average levels appears set to stretch further."

Ritterbusch is still bearish. "While realizing that our advised bearish position is extremely close to our stop point, we are still suggesting a bearish stance for now. While weekend updates to the short-term temperature views are probably more apt to be bullish than bearish, we still feel that the market is primarily fixated on a major contraction in the supply deficit against last year that appears poised to see further narrowing going forward."

Near-term weather forecasts were little changed. Commodity Weather Group in its six- to 10-day outlook continued to show above-normal temperatures throughout the northern half of the country and normal elsewhere. "[F]or temperatures, no major changes are noted today with a warm North and seasonal South look for the six-10 day and then cooler variability returning late six-10 day into the 11-15 day range," said Rogers.

 "The models were a bit warmer in the western Midwest for the 11-15 day, while a bit cooler in the Northeast, especially early in the period. After some short-term heat, the Southwest and California trend back toward the normal range in the six-10 day and hold there mostly for the 11-15."

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