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Eastern Gains Overpowered by Wider Weakness; October Eases Ahead Of EIA Stats

Spot natural gas prices Wednesday for Thursday delivery were dragged down by soft pricing in the Midwest and Producing Zones that were tamed somewhat by strength in New England and the Mid-Atlantic.

At the end of the day, the physical market was down 5 cents. Futures eased ahead of the weekly inventory report with October slipping 3.0 cents to $3.954, and November falling 3.0 cents as well to $4.005. October crude oil continued lower falling $1.08 to $91.67/bbl.

Next-day gas in the East rose as near-term temperatures were forecast to shoot higher for Thursday but then recede. Forecaster Wunderground.com predicted that Wednesday's high of 70 in Boston would jump to 82 Thursday and slide to 71 Friday. The normal high in Boston is 74. New York City's high of 78 Wednesday was expected to make it to 88 Thursday before dropping to 76 Friday; the seasonal high is 77. Washington DC's Wednesday maximum of 79 was seen advancing to a toasty 92 Thursday before backing off to 81 Friday. The normal high in mid-September is 82.

"Middle to high level debris clouds will be across the area by Thursday morning as a cold front approaches the Potomac Highlands,” said the National Weather Service in the Baltimore-DC area. “Southerly flow will continue at the surface and continue to draw in moisture with dewpoints rising into the low 70s by afternoon.

“Forecast maximum temperatures will range from the middle to upper 80s east of the Blue Ridge to the upper 70s in the mountains."

Gas for delivery at the Algonquin Citygates added 14 cents to $3.25, and deliveries on Millennium gained 11 cents to $2.81. Gas at Iroquois Waddington rose by 12 cents as well to $3.88.

In the Mid-Atlantic, gains were equally robust. Gas bound for New York City on Transco Zone 6 rose by 14 cents to $3.06 and parcels at Tetco M-3 were up by 12 cents to $2.99.

Prices eased Wednesday at the Chicago Citygates, but analysts see winter demand in Illinois increasing under normal winter conditions.

"Under normal temperatures, demand in Illinois is expected to follow the five year upward trend by growing to 4.5 Bcf/d this winter," analysts at Genscape said in their Basis Commentary note. "Over the past five winters, average population-weighted temperatures in Illinois have been 32.2 degrees. Within a 5 degree spread centered at 32.2 degrees, winter demand was 3.80 Bcf/d in 2009-2010. Demand bumped up to 3.95 Bcf/d in the 2010-2011 winter season. In 2011-2012, winter demand dipped to 3.81 Bcf/d, the only time in the past five years that temperature-adjusted winter demand has not increased, year/year. The following winter saw a 0.20 Bcf/d increase in demand, breaking the 4 Bcf/d mark, [and] last year, [polar vortex-driven] winter demand in Illinois jolted to 4.35 Bcf/d.

"After the largest year-on-year increase in winter demand, the 2014-2015 winter strip is projected to reach even higher levels of demand, under normal temperatures.”

Packages at the Chicago Citygates for Thursday delivery slipped 3 cents to $4.03, and gas on Alliance gained a penny to $4.05. Next-day gas on Michcon was lower by 3 cents to $4.07, and gas on Northern Natural Ventura was off by 5 cents to $3.94.

Producing Zones also reported weaker pricing. At the Cheyenne Hub, next-day gas slipped 2 cents to $3.86 and on the CIG Mainline Thursday packages fell 2 cents to $3.80. At Opal, next-day gas added 6 cents to $3.87 and on Transwestern San Juan next-day gas fell a nickel to $3.88.

Storage inventories stand at 2,709 Bcf, a stout 471 Bcf less than last year at this time. If analysts' projections are correct, the current trend of diminishing deficits will continue. The Energy Information Administration will deliver the weekly storage report on Thursday morning. Last year 64 Bcf was injected and the five-year average comes in at 60 Bcf. This week's expected build is seen far greater.

IAF Advisors of Houston forecast an increase of 89 Bcf while Citi Futures Perspectives comes in with something of a low ball at 70 Bcf. United ICAP predicts a fill of 87 Bcf.

Forecasters overnight Tuesday saw little change, if only to moderation. "The strong Canadian weather system we have been mentioning for quite some time will finally track across the U.S. over the next several days, and while it will bring some heating demand to the northern U.S., including into the central Plains, it will also bring very comfortable temperatures to the southern U.S. and drive much lower than normal cooling demand," said Natgasweather.com in a Wednesday morning report.

"After a quick reinforcing cool blast follows into the Great Lakes around Monday, temperatures will warm over many regions back into the 70s and 80s and provide very good natgas build weather. With this week's build starting the trend of bigger builds to come, deficits will continue to be replenished at a steady rate through September where weekly builds will likely continue to be 30 Bcf-plus greater than normal. Southern California coastal cities will be quite warm at times over the next 10 days as offshore winds bring highs of 90s to high population cities. There's nothing we see in the weather or climate data that suggests an impressive cold outbreak will follow for many weeks to come."

Consistent with the Natgasweather.com outlook, the National Weather Service (NWS) calculates extremely modest heating and cooling requirements over major population centers. NWS forecasts that for the week ending Sept. 13, heating requirements from New England to Wisconsin should be on balance below normal. New England is expected to see 14 heating degree days (HDD), or 9 fewer than normal, and the Mid-Atlantic states of New York, New Jersey and Pennsylvania should have to endure just four HDD, or 10 fewer than normal. The greater Midwest from Ohio to Wisconsin should experience 20 HDD, or two more than normal.

Cooling requirements show a similar pattern. New England is anticipated to enjoy just 10 cooling degree days (CDD), or three more than normal, and the Mid-Atlantic should see 19 CDD, or one more than its normal seasonal tally. The Midwest is expected to realize 16 CDD, or two fewer than normal.

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