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Northeast Unable to Counter Broad Weakness; October Rallies Late

It was a mixed day of trading Tuesday, but overall physical gas prices for Wednesday delivery trekked lower. Nearly all points were lower with the exception of New England and a few western locations.

Losses for the most part were from a nickel to a dime, and the overall market was off by 4 cents. October futures managed a rally after the close of physical trading and added 6.4 cents to $3.995, and November was higher by 6.6 cents to $4.063. October crude oil fell $1.96 to $94.88/bbl.

Near-term temperature patterns along the Eastern Seaboard featured a struggle to make it to seasonal norms. AccuWeather.com forecast that Boston's high of 66 degrees Tuesday would reach 69 on Wednesday and 72 Thursday. The seasonal high in Boston is 72. New York City's 71 high on Tuesday was seen rising to 73 Wednesday and 76 Thursday. The normal mid-September high in New York City is 75. Philadelphia's 76 high reading on Tuesday was expected to ease to 75 Wednesday and be back to 76 Thursday. The normal high in Philadelphia is 78.

Next-day gas on Transco Zone 6 into New York City fell 2 cents to $2.54, and deliveries to Tetco M-3 were seen lower by 4 cents to $2.48.

Cold weather is expected to make a return visit before the end of the week. "The chilliest air of the season so far will settle over much of the Northeast Thursday into Friday and will bring frost to more areas than experienced frost early this week," said AccuWeather.com meteorologist Alex Sosnowski.

"The pattern through this week will bring cooler-than-average temperatures to the region with a reinforcing push of cool air forecast to settle in Thursday night and Friday. The air mass moving in late this week has originated from the Arctic and record lows will be challenged from Ottawa to Montreal and Quebec City," according to meteorologist Brett Anderson.

"While record lows are not likely to fall along the I-95 corridor from Boston to New York City and Washington, DC, temperatures may dip to their lowest levels since the spring and surpass the chill from a few days earlier. Record lows during the middle of September in the I-95 Northeast are typically in the lower to middle 40s F," Sosnowski said.

"In portions of northwestern New England, upstate New York and northern Pennsylvania...low temperatures in the lower 30s are forecast for much of this area, with the coldest rural areas, away from lakes and rivers, likely to dip into the 20s. The area of high pressure responsible for the chill will slowly moderate this weekend into early next week. High temperatures will trend upward through the 70s along much of I-95 and in much of the central Appalachians. Some people heading to afternoon high school, college and NFL football games this weekend will be able to shed jackets and sweatshirts for a few hours."

Deliveries Wednesday at the Algonquin Citygates rose 4 cents to $2.59, and gas on Millennium added 2 cents to $2.41. Gas bound for Tennessee Zone 6 200 L gained 19 cents to $3.09.

Gas at Rocky Mountain points was mixed. Deliveries to CIG gained 14 cents to $3.74, but both Cheyenne and Opal came in unchanged at $3.82. Gas on Northwest Pipeline Wyoming was seen at $3.80, down a penny.

West Coast prices were soft. Deliveries to Malin shed 44 cents to $3.91, and gas at the PG&E Citygates was off 6 cents to $4.45. At the SoCal Citygates Wednesday packages were seen at $4.42, down 6 cents, and at the SoCal Border gas changed hands at $4.14, down 11 cents. Parcels on El Paso S Mainline were off a nickel to $4.25.

Futures prices rose late in the session after the close of physical trading as the National Weather Service forecast greater cooling in its eight- to 14-day outlook. Monday's forecast showed a ridge of cool temperatures extending to the Great Lakes from New England and the Mid-Atlantic, but Tuesday's forecast showed an elongated ridge reaching from Maryland to Arkansas to West Texas.

Analysts are mulling whether the traditional seasonality will prevail with spot futures putting in a late-summer to fall bottom and rallying into late November or early December. "[W]e've heard more than a few traders express their reticence for building excessive short positions following the Labor Day holiday because of traditional seasonality," said Teri Viswanath, director of commodity strategy for natural gas at BNP Paribas.

"Taking a closer look at the price trends of the past five years, we do see a slight tendency for the October futures contract to rally into expiration following the holiday. However, with the exception of 2009 (when natural gas prices staged a dramatic $1 recovery in the front of the curve), the data suggests to us that prices typically remain in a tight 20-cent range. In fact the re-acceleration of restocking last year result[ed] in the Oct. '13 contract declining from $3.66/MMBtu following the holiday to $3.498/MMBtu by expiry. The pick-up in inventory restocking we see ahead might likewise curtail early winter bargain hunting this year.

"We note that, with the exception of 2012 (when storage capacity concerns kept prices depressed), the more recent price history suggests that the market tends to establish a floor around $3.50/MMBtu toward the end of the injection season. From a fundamental perspective, market share in the electric power sector tends to favor heavier gas utilization with natural gas prices at or below this level. We made this same observation a year ago when prices tested down to the seasonal low of $3.23/MMBtu during early August, with prices subsequently ranging between $3.50 and $3.75/MMBtu for the balance of that season. While acknowledging the dangers of picking a bottom in a falling market, we expect that prices will likely fall within a similar trading range until early heating demand emerges in October."

If near-term weather forecasts are correct, buyers for power generation in PJM will have to navigate mild weather patterns, some load-killing rain and low output from renewables. In its Tuesday morning forecast WSI Corp. said, "A weakening frontal system will lead to mostly cloudy skies and just a slight chance of a few lingering showers across the Mid Atlantic today. High pressure and fair weather will slide in behind this system later today into Wednesday. A secondary cold front may usher in a reinforcing area of cool high pressure for the end of the week. The center of high pressure should slide off the East Coast during the weekend, which should allow for a moderating southerly flow to develop, and eventually by Saturday night some wet may push into the Chicago metro area.

"Weak wind generation is expected today into most of Thursday. However, a developing southerly flow around the western periphery of high pressure should support an upward trend in generation during Thursday night through Saturday. Output may range 1-2-plus GW. The lack of any significant rainfall may cause stream flow and hydro prospects to hold steady, if not abate as the period progresses."

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