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Warmth Still Holding; October Seen A Penny Higher

October natural gas is expected to open a penny higher Wednesday morning at $2.73 as traders admit to a tenacious warmth expected to not relinquish its hold on major eastern energy markets. Overnight oil markets were mixed.

Forecasters won't let up in their prognostications for continued above-normal warmth in major markets. "We continue to track some impressive late-season heat for the Eastern Seaboard over the coming days, with up to middle 90s in the Middle Atlantic and some upper 90s threats from Washington, DC, to Richmond [VA, on Thursday] and again on Saturday," said Matt Rogers, president of Commodity Weather Group, in a morning note to clients.

"Humidity levels are unusually strong for post-Labor Day weather, too, with dew points around 70 during much of the peak heat. This fades away next week, but we still get some quick swipes at the lower 90s in the Middle Atlantic toward middle of next week."

Tim Evans of Citi Futures Perspective is expecting a 48 Bcf storage build in Thursday's Energy Information Administration (EIA) inventory report, well below last year's robust build of 79 Bcf and five-year mean of 64 Bcf. "From what we've seen so far, our estimate of 48 Bcf in net injections for the week ended Sept. 2 is on the upper end of early range of forecasts, with the consensus running closer to 40-45 Bcf. Production shut in due to Hurricane Hermine may account for some of the difference as we are not making any explicit adjustment to our figures given that even the peak outage of 360 MMcf/d for Aug. 31 was inside where the normal margin for error for the U.S. supply-demand balance, in our view.

"In the current market, for example, we see potential for a seasonal decline as the rate of storage injections picks up again and storage approaches its peak for the year. We also see the market's current valuation at a premium over the 2015 price as difficult to sustain at a time when last week's storage total was still 238 Bcf (7.5%) higher than a year ago."

Evans said he entered the market on the short side Tuesday with a stop at $2.74 in the October contract. "We recommend working a protective buy stop at $2.94 to limit the initial risk. Our profit objective is $2.44.

For the week ended Sept. 10 the National Weather Service (NWS) is calling for well above normal cooling degree days in major energy markets. New England is expected to endure 44 CDD (cooling degree days), 35 above normal, and the Mid-Atlantic is forecast to swelter under 58 CDD, or 37 above normal. The greater Midwest from Ohio to Wisconsin is seen baking under 66 CDD, or 45 greater than its normal seasonal tally.

In overnight Globex trading October crude oil fell 26 cents to $44.57/bbl and October RBOB rose a half-cent to $1.3213/gal.

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