Much of the physical natural gas market recorded small upticks for a second straight day despite the facts that summer heat is waning and the levels of natural gas in storage are more than comfortable. While most regions did report gains, pockets of declines were prevalent on Tuesday for Wednesday delivery in the Northeast and the Rockies, while a number of points were flat. September futures put in a quiet day Tuesday with a $2.775 close, one-tenth of a penny lower than Monday's finish.

A couple of Northeast and Rockies points posted losses. El Paso Bondad dropped 2 cents to $2.67, and Stanfield and Transwestern San Juan both dropped 3 cents to average $2.54 and $2.70, respectively. In the Northeast, Algonquin Citygate was the biggest loser with a 13-cent decline to average $2.97. Tennessee Zone 6 200L came off by 8 cents to $2.97 as well.

Most of the day's gains across the country were of just a few cents, while the strongest overall region was the Midwest. Chicago Citygate added a nickel to $2.87, and Dawn gained 6 cents to average $3.05, while Alliance posted a nickel gain to $2.88.

The strongest gainer of the day was Oneok Gas Transmission (OGT), where an OFO was reportedly issued for work. OGT added 13 cents Tuesday to average $2.65.

"They are doing some work on OGT, which issued an OFO," said a Midcontinent marketer. "It can't bring gas in and can't inject into storage. Prices on OGT were pretty low Monday, but they bounced back in a big way Tuesday. No one is really sure what kind of effect the OFO is having because of the supply cut and the inability to put it in storage."

Commenting on the early week strength in cash prices, the marketer -- considering current fundamentals -- was "scratching his head" in search of answers. He noted that the cash market appeared to start Tuesday 10 cents higher than Monday. "We're really not sure where this strength is coming from in the face of the current bearish fundamentals," he told NGI. "I believe we are seeing the same old story of cash reacting to the Nymex. If the screen goes up, cash will follow, and vice-versa. Feeding off of futures momentum is nothing new. On Monday the September futures contract increased 5.7 cents to close the regular session at $2.776, and cash traders took notice Tuesday. Obviously, with futures nearly unchanged Tuesday, Wednesday cash will have to look elsewhere for influence."

To see any lasting rebound in prices, the marketer said this winter is going to have to hit hard. "We need a brutally cold winter to knock off some of this inventory surplus, but even then it might be difficult to boost prices because there is just so much gas out there."

With not much impetus for futures to move in either direction, Jim Ritterbusch of Ritterbusch and Associates said he is maintaining "a bearish trading posture in this market," but he also feels that additional price declines toward "our target $2.50 area could prove arduous."

Acknowledging that the temperature factor will be less important with the approach of fall, the analyst said short-term forecasts will still be a price driver for a few more weeks. "NOAA has projected a warmer than normal September, but we feel that this has likely been priced in and some extreme outlooks in either direction will be needed to affect price by more than 6-7%," he said. "The large approximate 15% price plunge seen during the first two weeks of this month is likely a thing of the past even if temperatures remain moderate and a major hurricane event into the GOM fails to develop."

On the storage front, Ritterbusch said the huge contraction in the year-over-year supply surplus from around 900 Bcf back in March to around 360 Bcf cannot be denied, but has likely already been priced into the market. Despite the contraction, he still believes it is likely that the U.S. will enter the withdrawal season with a record amount of gas in storage.

"Even allowing for a warmer than normal September, a storage peak near the 4 Tcf level remains within easy reach and will continue to act as a major deterrent to sustainable price advances," Ritterbusch noted. "With the temperature factor slowly being pushed to the sidelines as a price determinant, we anticipate a soft physical price environment, one that is apt to provide a drag on nearby futures with winter weather uncertainties supporting an early 2013 contract. Stated differently, we still see additional expansion ahead in the carrying charges across the fall/winter portion of the curve."

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