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Firm Futures No Help for Crumbling Cash; October Adds More Than 3 Cents

With weather forecasts looking mild over the weekend, buyers on Friday stepped back and found little incentive to spring for a three-day deal when incremental volumes can be purchased easily with today's plethora of personal communications devices.

All but a couple of market points fell into the loss column, and losses of a dime or more were common. Eastern points suffered losses of up to a half dollar as forecasters called for the lowest temperatures since the spring to envelop the Northeast Sunday into Monday. The overall market dropped 18 cents. October futures managed a modest gain, adding 3.4 cents to $3.857, and November gained 3.7 cents to $3.910. October crude oil dropped 56 cents to $92.27/bbl.

Weekend and Monday gas fell as next week "high temperatures are forecast to be in the 70s in most major cities during most days next week, with nighttime lows in the 50s, [but] following a chilly rain during part of the weekend, the coolest air since the spring will settle over the Northeast Sunday night into Monday morning," said AccuWeather.com meteorologist Alex Sosnowski. "Temperatures are forecast to dip into the 50s from Boston and New York City to Philadelphia and Washington, DC. The last time readings were this low was during the first couple of days of June in most cases and in late May in others.

"The northern and western suburbs of the Interstate 95 cities will dip well down into the 40s. Cities forecast to drop into the 40s this weekend include Pittsburgh, Buffalo, New York and Burlington, VT. Some locations from northern Pennsylvania, upstate New York and northwestern New England will dip into the 30s. Provided skies remain clear and winds diminish, there is a risk of scattered frost for a few hours late Sunday night into Monday morning.

"Meanwhile in the South, the warm and humid conditions will slowly slip away through the weekend and into next week. By next week, highs most days will be in the 70s from Atlanta to Charlotte, NC, and Richmond, VA. Even in the Deep South from Louisiana to Florida, highs are forecast to be in the 80s, rather than the 90s, most days next week. While few records are expected to be broken in the East as the cool air settles in at the middle of the month, the fresh cold air made its mark over the Central states this past week," he said.

AccuWeather.com forecast that Friday's high in Boston of 68 degrees would hold Saturday and reach 70 by Monday, still 4 degrees below the seasonal norm. New York City's 77 high Friday was seen sliding to 71 Saturday and rising to 74 Monday. The normal high this time of year in New York is 76. Norfolk, VA's 76 high Friday was anticipated to reach 80 Saturday but slide to 77 on Monday. The normal mid-September high in Norfolk is 80.

Gas headed for New York City on Transco Zone 6 shed a hefty 47 cents to $2.06, and parcels on Tetco M-3 skidded 41 cents to $2.09. 

In Appalachia, weekend and Monday gas on Columbia Gas TCO dropped 9 cents to $3.81, and parcels on Dominion South shed 34 cents to $2.05.

Marcellus points were also weak. Deliveries on Transco Leidy were seen 39 cents lower to $1.97, and gas on Tennessee Zone 4 Marcellus fell 35 cents to $1.94.

The recent softness in Great Lakes pricing has marketers stocking up. "We did buy a fair amount for the weekend, and we were able get gas at $3.88 on Consumers," said a Michigan marketer. He said the price had gotten better and was less than what his September baseload was priced at.

The marketer said that winter basis had risen to 39 cents, but "we locked in gas for a portion of our customers at 31 1/2 cents. The basis was the big problem last winter, and we were paying $6 to $8. Getting the 31 1/2 cents was a decidedly better deal and that will take us all the way through March."

Weekend and Monday gas throughout the Midwest and Great Lakes fell about a dime. Gas on Alliance fell 10 cents to $3.86, and deliveries to the Chicago Citygates were seen at $3.86, down 9 cents. Gas on Consumers skidded 10 cents to $3.88, and deliveries to Michcon were off 8 cents to $3.90.

Traders weren't paying much attention to a broad area of low pressure tracking over southern Florida Friday that may have the potential to strengthen and move toward natural gas infrastructure along the Gulf Coast early next week, according to one forecaster.

"While the tropical circulation that is tracking over Florida looks [like] nothing more than some disorganized thunderstorms, we do expect it will become more impressive later in the day," meteorologists at Natgasweather.com said Friday (see related story).

Meteorologists were also following Tropical Storm Edouard about 1,245 miles east of the northern Leeward Islands. At 5 p.m EDT Friday Edouard was packing 45 mph winds and was headed to the northwest at 13 mph. The National Hurricane Center projected that Edouard will pass to the east of Bermuda, but should it change course and head more west, it could impact East Coast energy demand and lessen power requirements with heavy rainfall, lower temperatures and cloud cover.

Thursday's 13-cent futures price flush may not be as significant as it seems. Analysts Christopher Louney and Michael Cohen at Barclay's said, "Although the usual culprits -- cool weather and a bearish storage injection -- pressured the prompt contract, prices were still higher week on week as of Thursday's close. Prices have remained subdued this summer versus the highs of last winter as overall weather has been cool and storage injections strong. Yesterday, a higher-than-consensus storage injection was the biggest pressure on prices, but cool weather risks in the east added to the downside pressure.

"The latest injection narrowed the deficit versus the year-ago level by 28 Bcf, to 443 Bcf, and the deficit to the five-year average by 32 Bcf, to 463 Bcf. In line with this, we reiterate our view that storage will end the injection season at about 3.5 Tcf, roughly 300 Bcf below last year's level, which would require a weekly build equivalent to the 10-week moving average."

A lower than normal ending inventory won't likely be enough to avert still lower prices as analysts see further price deterioration ahead as weather forecasts prove unsupportive and the back half of the hurricane season should see some storm premium dissipate. "The deficit against five-year averages has shrunk to roughly 14%, or 463 Bcf. With similarly sized large supply builds likely ahead during the next couple of months, [Thursday's] report reinforced our expectations for a peak supply north of the 3.6 Tcf level," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Thursday to clients. [Thursday's] sharp selloff also provided some indication that this week's price spike on Monday-Tuesday was overcooked and destined for evaporation.

"November futures that dropped down to within about 5 cents of last Friday's close appear destined for fresh lows to below the $3.76 level likely by Monday. Meanwhile, we see nothing particularly bullish about the short term one- to two-week temperature outlooks, and we also see a need for some storm premium evaporation now that the statistical peak of the hurricane season has passed. In sum, we are maintaining a bearish trading posture in quest of fresh lows and a drop to about the $3.65 region where we may begin to consider the long side of the winter contracts."

In its September Short Term Energy Outlook, the Energy Information Administration estimated storage at "3,477 Bcf at the end of October, 339 Bcf lower than at the same time last year."

Industry consultant Genscape said the 92 Bcf build Thursday "saps the strength out of the winter contract [and] also marks the 16th week this summer that injections have set a five-year high. The build brings working gas in storage to 2,801 Bcf. This closes the deficit to last year's same-date inventory to 452 Bcf, and brings current inventories to within 464 Bcf of the five-year average.

"Thursday's bearish announcement caused the 2014-2015 winter strip to fall to $3.97. That marked a $0.13 drop from Wednesday, the largest day-over-day decline of the contract since mid-July. Nonetheless, the year-on-year deficit continues to prop up prompt winter prices. Nonetheless, the persistent inventory gap to last year and normal levels has made trading of prompt winter this September much stronger than last September. Month-to-date, the prompt winter contract has traded at an average $4.02. Last September, prompt winter trading averaged $3.85."

There may not be a great need for near-term gas for power generation across the expansive Midwest Independent System Operator grid going into the weekend. Forecaster WSI Corp calls for load killing rain and cool temperatures. "A secondary disturbance is expected to bring a swath of light rain across portion of the Midwest and Great Lakes during the next couple of days. A reinforcing area of cool and dry high pressure should settle in behind this system as the weekend progresses. Yet another quick moving cold front may trigger a few showers late Sunday into Monday, which will bring more cool air into the power pool early next week. Period rainfall amounts may only range 0.1-0.25 inches."

Wind generation looks to be variable. "A northerly breeze will support light wind generation today into early Saturday with output around 1 GW. A southerly flow ahead of a cold front may lead to a sharp spike in generation during Saturday night into early Sunday. Output may briefly peak over 4-5 GW. Wind generation should subside and become light during Sunday into early next week," WSI said.

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