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Mild Weather, Waning Storm Threat Lower Prices

Surprise, surprise! A screen spike nearly always leads to higher next-day cash prices, and Wednesday's record-high daily settlement for a prompt month would have seemed to have extra potency in its impact. But prices Thursday bowed instead to generally tepid weather fundamentals and to growing indications that Hurricane Katrina will not make it to the eastern end of the Gulf of Mexico production area and instead will be diminishing power generation load in the Southeast by early next week.

The result was a downturn at all points that reached double-digit figures in nearly all cases. The drops ranged from a little less than a nickel to about 70 cents. The West was somewhat of a puzzle. Tight supply issues remained in the regional market and it tended to see most of the smaller declines, yet Waha, El Paso-Permian and El Paso North Baja/Ehrenberg recorded some of the day's biggest dives.

A western trader could only surmise that the Permian and Waha markets had "been overpriced already Wednesday," especially in relation to considerably lower-priced Midcontinent pipes. The Palo Verde #1 and #2 nuclear units in Arizona, rated at 1,243 MW each, remained at zero output Thursday, according to NGI's NRC Power Reactor Status Report (http://intelligencepress.com/subscribers/power/nrc/). However, those are the nation's only current significant nuclear outages.

The Energy Information Administration added to Thursday's bearish turn of the market by reporting a 60 Bcf storage injection for the week ending Aug. 19. The volume was well within the range of prior expectations but a little to the high side of consensus guesses. Although the screen was down more than half a dollar at one point after the report, it recovered considerable ground to close out down 21.4 cents at $9.770. Crude oil for October delivery shrugged off diminishing Katrina concerns and the government's report Wednesday of a build in inventories, going from an early negative position to finish the day up another 17 cents to $67.49/bbl, raising the bar once again for a record prompt-month daily settlement.

Moderate warming trends are under way in the Northeast and Midwest, but highs Friday aren't expected to exceed the mid 80s except in the lower end of the Midwest, according to The Weather Channel (TWC). Hot weather will remain the norm from western portions of the South through the desert Southwest, TWC said, and peaks in the 90s will extend into parts of the Pacific Northwest and inland Northern California.

The National Hurricane Center (NHC) upgraded Tropical Storm Katrina to Category One hurricane status (sustained winds of at least 74 mph) Thursday afternoon as it neared the southeast Florida coast. At 5 p.m. EDT the center of Katrina was about 15 miles east-northeast of near Fort Lauderdale and moving toward the west at nearly 6 mph, with projected landfall sometime that evening.

Although hurricane paths can be unpredictable, the NHC continued to project that after Katrina passes over southern Florida it will veer northward towards the center of the state's Panhandle. That would keep it at a considerable distance from the easternmost Gulf of Mexico facilities in Alabama's Mobile Bay area. However, news reports Thursday said some producers had already begun evacuating nonessential workers from platforms and drilling rigs in that area purely as precautionary measures. No production impacts were expected (it should be remembered that the heaviest winds and rains of a hurricane usually are concentrated to north and east of its center).

Instead of disrupting supplies, Katrina is expected to disrupt late weekend load by causing power outages and cooling temperatures in the Southeast. NHC's projected tracking had the storm reaching the southwest corner of Georgia around 2 p.m. EDT Monday.

A Gulf Coast producer said he is "not surprised by anything" when gas prices are above $9 in the production area (and above $10 for Northeast deliveries), so cash softness following a futures spike did not catch him napping. "No one really bought into" the screen's record close Wednesday, he added, "and it was a free-fall" in cash trading Thursday.

The buyer for a Lower Midwest utility said his area was experiencing "seasonable" temperatures in the 80s Thursday, but the company had a little electric generation load coming back online for Friday. He could detect no September trading activity yet, and said September "is a quiet month for us" loadwise, so he didn't expect to make any baseload purchases during bidweek.

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