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Heat Is Back; September Called 6 Cents Higher

September natural gas is expected to open 6 cents higher Thursday morning at $3.88 as more distant weather forecasts turned warmer and traders prepared to deal with the uncertainty of the release of government storage data. Overnight oil markets fell.

Longer-dated weather forecasts turned supportive overnight. WSI Corp. in its morning 11-15 day forecast said conditions have "trended warmer over Texas and the Southern Plains; it is not as warm over California and the Pacific Basin. Confidence in this package remains average at best.

"Models continue to struggle with some of the finer details in the six-10 day period, never mind the 11-15 day. Nonetheless, the general trend seems to be for a more energetic, lower amplitude flow across the northern tier and flat subtropical ridging across the southern tier."

Traders will also have to digest the 10:30 a.m. EDT release by the Energy Information Administration of storage data for the week ended Aug. 15. The numbers are expected to show a continuation of the trend of above-normal injections as the industry attempts to remedy the effects of last winter's polar vortex-driven drawdown of gas supplies. At present, inventories stand at 2,467 Bcf, or 575 Bcf below the five-year average at this stage of the injection season. Expectations are that the report will show an increase of 80-plus Bcf, well above last year's 58 Bcf and a five-year average of 48 Bcf.

Analysts at United ICAP predict a build of 86 Bcf, and Bentek Energy calculates an increase of 84 Bcf utilizing its flow model. A Reuters poll of 25 traders and analysts revealed an average 83 Bcf with a range of 74-94 Bcf.

Analysts Wednesday were studying what they saw as a less impressive heat event and diminished power load resulting from tropical activity.

"The promise of widespread warmth in these southern states had led to the initial rally in natural gas prices this month," said Teri Viswanath, director of commodity strategy for natural gas at BNP Paribas. "Perhaps not surprising as Texas and Florida alone account for roughly a third of the total gas consumed for power generation in the country. With the much-anticipated end-of-season heat event now looking less impressive, there appears to be very little fundamental support for gas prices as we near the end of the injection season. While acknowledging the dangers of picking a bottom in a falling market, we see the possibility of further price declines ahead."

The National Hurricane Center (NHC) in its 8 p.m. EDT Wednesday report said the pattern of shower and thunderstorm activity that is associated with an elongated area of low pressure located several hundred miles east of the southern Windward Islands continued to move westward at 15 to 20 mph across the Lesser Antilles and into the Caribbean Sea. "A tropical depression could form while the system moves west-northwestward," yet the storm could encounter resistance as it hits the mountainous terrain of Hispaniola and eastern Cuba. NHC placed the chance of tropical storm formation in the succeeding 48 hours at 50% and in the succeeding five days at 70% as it ultimately moves toward Bermuda.  

In overnight Globex trading October crude oil fell 66 cents to $92.79/bbl and October RBOB gasoline shed a penny to $2.5649/gal.

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