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East Weakness Offset by Broader Gains; Futures Add Nearly 4 Cents

Physical gas for Thursday delivery made nominal advances in Wednesday's trading. Quotes in the East and Northeast sagged following lower power loads and prices, but those were generally offset by gains in the Marcellus and Appalachia as well as the Midcontinent, Rockies and California.

Next-day weather was seen offering little change. Overall, the market gained just a penny. At the close of futures trading, September had risen 3.6 cents to $3.933 and October was higher by 3.7 cents to $3.957. September crude oil fell 46 cents to $96.92/bbl.

Falling power load in the East and Northeast as well as softer next-day peak power kept next-day gas on the defensive. The New York Independent System Operator (NYISO) forecast that Wednesday's peak load of 24,341 MW was expected to fall to 23,120 MW Thursday and 22,934 MW Friday. The New England ISO predicted peak loads at the Massachusetts Hub Wednesday of 20,070 MW would fall to 18410 MW Thursday and slide to 18,250 MW Friday.

Next-day prices followed load lower. IntercontinentalExchange reported that next-day peak power at the NYISO Zone A Hub dropped $4.69 to $40.34/MWh, and at the New England ISO's Massachusetts Hub pricing point, next-day peak power fell $3.67 to $35.79/MWh. Power deliverable to the PJM West Hub shed $4.90 to $37.91/MWh.

Temperature forecasts for the Atlantic Seaboard were benign. AccuWeather.com predicted that Boston's Wednesday high of 79 degrees would slip to 77 Thursday before climbing back to 79 Friday. The seasonal high in Boston is 81. New York City's expected high of 81 Wednesday was seen holding Thursday and inching up to 82 Friday. The normal early August high in New York City is 84. Philadelphia's 77 maximum Wednesday was anticipated to reach 84 Thursday before easing to 83 on Friday. The normal high in Philadelphia is 86.

"Yet another push of cooler and less-humid air will settle into the New York City prior to the weekend," said Alex Sosnowski, AccuWeather.com meteorologist. "While Bertha will still generate some rough surf and the risk of locally strong rip currents into Thursday along the Atlantic Coast, the system was losing tropical characteristics. Spanning Thursday through Sunday, each day will bring at least partial sunshine, cooler-than-average air and lower-than-average humidity levels for early August. Typical highs this time of the year are around 84 F.

"A system is forecast to spread some rain and thunder across the Ohio Valley and southern part of the mid-Atlantic this weekend. That rain would only move into and overwhelm the dry air around the New York City area if this system travels farther to the north than expected."

Algonquin Citygates quotes lost a penny to $2.85, and gas on Iroquois Waddington fell 14 cents to $3.83. Gas on Tennessee Zone 6 200 L fell 22 cents to $2.83.

Deliveries to New York City on Transco Zone 6 shed 3 cents to $2.67 and gas on Tetco M-3 was lower by a nickel to $2.57.

Marcellus and Appalachian points rose. Gas on Transco Leidy rose by 8 cents to $2.17, and parcels on Tennessee Zone 4 Marcellus gained 6 cents to $2.05. Deliveries to Columbia Gas TCO added a couple of pennies to $3.87, and gas on Dominion South was seen 3 cents higher at $2.40.

Producing zone prices generally firmed. Gas for Thursday delivery at NGPL Midcontinent Pool rose 3 cents to $3.83, and gas on ANR SW added 5 cents to $3.81. Packages on OGT added 3 cents to $3.74, and on Panhandle Eastern gas for Thursday changed hands at $3.83, up 7 cents. Gas at Demarcation rose 1 cent to $3.94.

Spot futures show a negative correlation to changes in five-year average storage deficits, and if Thursday's Energy Information Administration storage report remains true to form, futures prices may decline following the release of the data. Estimates for the week ended Aug. 1, are well above the five-year injection rate and generally center around the 84 Bcf level.

Last year, 90 Bcf was injected, but the five-year pace stands at a modest 49 Bcf. Analysts at United ICAP expect an increase of 85 Bcf, and the folks at IAF Advisors predict a build of 79 Bcf. A Reuters survey of 25 traders and analysts revealed an average 84 Bcf with a range of 79-90 Bcf.

The injection season still has three months remaining, and some see concerns of a price rally as premature. "On balance, the weather forecast consensus suggests below-normal cooling demand for the balance of August," said Teri Viswanath, director of commodity strategy for natural gas at BNP Paribas.

"From all accounts, it appears that this recent price recovery is more a result of nervous short-sellers and itinerant fundamentals rather than a genuine reversal of the summer sell-off. To be sure, rapid institutional de-leveraging has occurred over the past several weeks as the cumulative effect of more than two months' worth of outsized storage injections weighed in on market sentiment. It appears that with the weather now aligning with the 10-year normal, these market participants might be scaling out of short positions with concerns of a late-season rally.

"However, with at least three more months of restocking ahead, we see more price deterioration ahead," she said in a note to clients.

Analysts saw bargain hunting as contributing to [Tuesday's] advance. "In our view, the gains were primarily technical in nature but may also reflect the idea that prices have fallen to a level that represents more of a fundamental bargain," said Tim Evans of Citi Futures Perspective in closing comments Tuesday. "There is also potential for an intermediate term seasonal rally, with prices firming back up ahead of the winter heating season.

"Expectations for Thursday's DOE storage report for the week ended Aug. 1 have also walked somewhat lower, with early editions of the major newswire surveys pegging the consensus at 85-88 Bcf in net injections. We note this would still be well above the 50 Bcf five-year average, an extension of the recent bearish storage trend. With our model projecting a slightly higher 90 Bcf build, we also see at least some risk of a minor bearish surprise."

According to Evans' figures, "the year-on-five-year average storage deficit will continue its established bearish trend, with the year-on-five-year average deficit that was as much as 1,010 back on April 18 shrinking to 494 Bcf by Aug. 22. The declining deficit shows the market continuing to become better supplied on a seasonally adjusted basis, a bearish fundamental trend. While we are friendly to the idea of natural gas establishing a seasonal bottom, we also think it may take more than one try for it to turn the corner."

Natgasweather.com forecasts only low to moderate cooling requirements for the next seven days. In its Wednesday morning report it said, "The northern U.S. will see several weather systems track through with areas of showers and cooler than normal temperatures. However, the southern U.S. will see gradual warming, including the high use states of Texas, California, Oklahoma and Florida, with highs reaching the 90s and 100s while combining with high humidities for regionally strong cooling demand. The northern U.S. will warm up into the 80s next week and push demand to moderate."

Natgasweather.com calls any market impact "low" with "cooler than normal U.S. temperatures and large EIA (Energy Information Administration) weekly builds."

For the week ended Aug. 9, the National Weather Service forecasts below-normal accumulations of cooling degree days (CDD). New England should see 40 CDD, three fewer than normal, and the Mid-Atlantic should see just 48 CDD, or nine fewer than its seasonal tally. The Midwest from Ohio to Wisconsin was expected to experience 44 CDD or 10 fewer than normal.

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