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Slumping NatGas Cash Outdone by Tortoise-Like Futures Gains

Physical natural gas trading on Tuesday for Wednesday delivery at most market points was characterized for the most part by modest moves of a few pennies in either direction. Notable exceptions were the Northeast, with $2+ moves, and southern California, with double-digit swings.

The NGI National Spot Gas Average dropped 9 cents to $2.55. Futures trading was not very compelling either, with the spot September contract rising 2.7 cents to $2.617 and October adding 2.8 cents to $2.657. September crude oil kept on truckin' higher with a gain of 84 cents to $46.58/bbl.

New England next-day gas took the biggest hit as next-day power prices and demand softened. Intercontinental Exchange reported on-peak power Wednesday at ISO New England's Massachusetts Hub tumbled $9.99 to $58.39/MWh and on-peak power at the New York ISO's Zone G (eastern New York) delivery point shed $7.69 to $56.00/MWh. On-peak next-day power at the PJM Interconnection's West Hub fell $8.06 to $39.00/MWh.

Gas at the Algonquin Citygate shed $2.12 to $3.88, and gas at Iroquois, Waddington was 16 cents lower at $2.85. Gas on Tennessee Zone 6 200 L dropped $2.02 to $3.29.

Gas bound for New York City on Transco Zone 6 fell 7 cents to $2.73, and parcels on Transco Zone 6 non-NY North serving southeasternmost Pennsylvania and New Jersey changed hands 13 cents lower at $2.67.

With Algonquin Citygate trading 75 cents higher than Tenn Zone 6 200L "there's likely plenty of gas on Tennessee trying to find a dual-connected market, a utility or other point capable of receiving gas from either Algonquin or Tennessee," said an industry pipeline veteran.

"People will try to arb that difference by taking gas through a Mendon, MA, interconnect that joins Tennessee and Algonquin. That interconnect is maxed out," he said.

Next-day power loads were forecast to moderate. ISO New England forecast that Tuesday's peak power load of 22,400 MW would ease to 22,080 MW Wednesday before creeping up to 22,090 MW Thursday. The New York ISO forecast New York City's peak load Tuesday of 10,618 MW would ease to 10,291 MW Wednesday before falling further to 9,785 MW Thursday.

Next-day gas in Southern California eased despite expectations of higher power loads. CAISO forecast peak load Tuesday of 42,022 MW would rise to 44,395 MW Wednesday.

Gas at the SoCal Citygate fell 15 cents to $3.40, and gas priced at the SoCal Border Avg. Average shed 24 cents to $3.17.

Deliveries to El Paso S. Mainline/N. Baja fell 36 cents to $3.18 and Kern Delivery was quoted 35 cents lower at $3.17.

Traders are not expecting much in the way of further gains. "We are not expecting much upside follow-through from the modest overnight price gains as this market appears stuck in a comparatively narrow range that will likely be sustained through the rest of this week," said Jim Ritterbusch of Ritterbusch and Associates in a Tuesday morning note to clients.

"Some mild temperature trends toward month-end have likely been priced in and the late stage of the CDD cycle is reducing the impact of daily updates to the one- to two-week temperature forecasts. These items have been efficiently priced via the drop in nearby futures of roughly 10% earlier this month. Additionally, the supportive dynamic of supply surplus contraction remains much intact and is apt to be furthered on Thursday. We will be looking for a seasonal injection of 28 Bcf that would compare with year ago and five-year average builds of around 57 Bcf.

"However, the peak cooling season is now in the rearview mirror and the market will be looking ahead to the upcoming shoulder period following expiration of the September contract later next week. Meanwhile, risk to the production forecasts going forward would appear bearish rather than bullish as the upside acceleration in the rig counts may force adjustments."

Forecasters are calling for cooler temperatures over the central U.S.

"Near to below average period anomalies are forecast to persist over much of the central U.S. during the 11-15 day timeframe," said WSI Corp. in its Tuesday morning outlook. "Above average warmth is expected over the West and the East Coast. Today's forecast is a touch cooler over the south-central U.S. and a little warmer over the northern Rockies. CONUS PWCDDs are down 0.6 for days 11-14 to 45.7 for the period.

"A persistent amplified flow and blocking offer a cooler risk across the central U.S. The West could run even warmer."

The National Hurricane Center at 2 pm EDT reported a system about 600 miles west-southwest of the Cabo Verde Islands that is gradually becoming better defined. It gave the system an 80% chance of forming a tropical depression in the succeeding 48 hours.

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