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Modest Cash Gains Outgunned by Stronger Futures; September Adds Nearly 7 Cents

Physical gas for Friday delivery inched higher in Thursday's trading as buyers and sellers raced to get their deals done before the release of the Energy Information Administration (EIA) storage report.

Most points rose, but scattered declines of a couple of pennies were seen in the Marcellus, Gulf Coast, Rockies and Northeast. The government reported a build of 88 Bcf for the week ending Aug. 15, somewhat greater than market expectations, and prices at first fell, only to be followed by a recovery well into positive territory. At the close of futures trading, September had added 6.6 cents to $3.889 and October was higher by 7.0 cents to $3.930. October crude oil gained 51 cents to $93.96/bbl.

Eastern points were lower as showers and thunderstorms kept temperatures well below normal. According to Alex Sosnowski, AccuWeather.com meteorologist, "Following a surge of humidity and drenching showers to end the week, dry and cooler air will push southward across the Philadelphia area this weekend. Humidity levels will drop Saturday into Sunday, while showers and spotty drenching storms shift to the south. Only spotty showers are forecast on Saturday.

"As the dry air takes hold, cloud cover will retreat to the south as well by Sunday. Temperatures are forecast to remain below average through the weekend. Highs Saturday and Sunday will be in the upper 70s to near 80 F. Temperatures typically range from a low of 67 F to a high of 84."

Thursday's high of 72 in Boston was expected to slide to 71 Friday and Saturday, eight degrees below the seasonal norm, AccuWeather.com figures showed. New York's Thursday high of 83 is expected to drop to 75 Friday and climb to 76 Saturday. The seasonal high in the Big Apple this time of year is 82. Philadelphia's Thursday peak of 82 was seen easing to 80 Friday before reaching a temperate 77 Saturday. The normal high in Philadelphia for mid-August is 85.

Friday deliveries to the Algonquin Citygates fell 4 cents to $2.42, and gas into Iroquois Waddington shed 3 cents to $3.86. Gas on Millennium dropped 9 cents to $2.20.

Gas bound for New York City on Transco Zone 6 was flat at $2.37, and deliveries to Tetco M-3 rose a penny to $2.35.

Deliveries to Columbia Gas TCO rose 2 cents to $3.92 and packages on Dominion South changed hands 4 cents lower at $2.25.

Marcellus points lost ground. Gas at Transco Leidy was seen 12 cents lower at $1.99, and deliveries to Tennessee Zone 4 Marcellus shed 10 cents to $2.00.

Traders were ready to digest the EIA report of storage data for the week ended Aug. 15. The numbers were 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. Prior to the report inventories stood at 2,467 Bcf, or 575 Bcf below the five-year average at this stage of the injection season. Expectations were that the report would 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 predicted a build of 86 Bcf, and Bentek Energy calculated 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.

The actual figure of 88 Bcf initially prompted lower prices. September futures fell to a low of $3.786 soon after the number was released and by 10:45 a.m. September was holding $3.803, down 2.0 cents from Wednesday's settlement.

"This number kind of took the steam off the upside," said a New York floor trader. "[Technical] Support is currently at $3.75, and below that $3.50. Resistance is at $4.00.”

Tim Evans of Citi Futures Perspective saw a possible supply shift. "The 88-Bcf build was more than expected, and suggests a weakening of the supply/demand balance, with bearish implications for the rate of injections to follow in the weeks ahead. It’s possible that supply has increased."

Inventories now stand at 2,555 Bcf and are 500 Bcf less than last year and 535 Bcf below the five-year average. In the East Region 65 Bcf was injected and the West Region saw inventories up by 49 Bcf. Inventories in the Producing Region rose by 14 Bcf.

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."

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 4 p.m. EDT Thursday report said the pattern of shower and thunderstorm activity that is associated with an elongated area of low pressure located 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.

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