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Strong Cash Gains Outshine Lagging Futures

Spot gas prices for Wednesday delivery made it two strong days in a row with nearly every market point posting gains and those few showing losses limited to the Gulf Coast and California.

A brief heat wave expected to hit New England and the East Coast pushed some quotes higher by $1, but the overall market gain came in a dime higher. In addition to hefty gains on Northeast pipes, the Mid-Atlantic, Marcellus, Appalachia and Midcontinent were all solidly in the black. Futures retreated ahead of Wednesday's September contract expiration. September slipped 2.6 cents to $3.911 and October fell 3.0 cents to $3.949. October crude oil rose 51 cents to $93.86/bbl.

Forecasters were calling for pervasive heat Wednesday in New England. The National Weather Service in southeast Massachusetts reported that "high pressure south of New England will yield warm conditions tonight [Tuesday]. Very warm temperatures continue Wednesday along with widely scattered thunderstorms as a cold front sweeps across the area late in the day. Dry...cooler conditions return Thursday and Friday behind the front...however, Hurricane Cristobal delivers rough surf and rip currents to South Coast ocean beaches as it tracks well offshore. Another front may bring unsettled conditions Sunday and Monday."

Forecaster Wunderground.com said Tuesday's high in Boston of 86 would reach a sweltering 90 on Wednesday but tumble to 79 on Thursday. The normal high in Boston in late August is 78. Providence, RI's 83 maximum on Tuesday was expected to reach 88 Wednesday and ease to 81 Thursday. The seasonal high in Providence is 80. Hartford, CT's searing 95 Tuesday was expected to fall to 90 Wednesday and drop to 81 Thursday. The normal high in Hartford this time of year is 78.

WSI Corp. in its Tuesday morning forecast for ISO New England said, "Fleeting high pressure will support fair skies, comfortable humidity levels and above-average late-summer warmth today [Tuesday]. A cold front will slide across the Northeast during Wednesday with a chance of isolated showers and thunderstorms, though it will remain hot prior to the frontal passage. Highs will still range in the 80s to near 90 across southern New England. Seasonably cool high pressure is expected to build into the region in wake of the aforementioned cold front during the end of the week. High pressure will depart during the weekend allowing warmer temperatures and higher humidity to return, though this will support a chance of a shower or storm."

Renewable power generation was expected to get a boost as "an increasing southwest breeze will provide a boost to wind generation this afternoon into tonight, which will give way to a brisk northwest wind during Wednesday afternoon through Thursday in wake of the aforementioned cold front. Wind generation should subside during the end of the week but may rebound again during the weekend. The recent and expected dry weather will scale back streamflow and reduce hydro prospects during the forecast period."

Next-day peak power prices rose throughout the area. IntercontinentalExchange reported that next-day peak power into western New York (Zone A) gained a stout $13.00 to $45.00/MWh and deliveries to ISO New England's Massachusetts Hub rose by $9.60 to $54.60/MWh. Next-day peak power into the PJM West terminal came in $2.09 higher at $49.88/MWh.

Quotes at the Algonquin Citygates vaulted $1.04 to $4.23, and deliveries to Iroquois Waddington added 9 cents to to $4.11. Gas on Tennessee Zone 6 200 L jumped 95 cents to $4.14.

In its September Bidweek Alert, NGI reported that basis on Algonquin Citygate deliveries was quoted from $1.35 to $1.30 under Henry and basis on Iroquois Waddington was 30 cents under. On Tennessee Zone 6 200 L basis trades were seen at $1.30 to $1.28 under.

On Tuesday, Mid-Atlantic prices firmed. Gas headed for New York City on Transco Zone 6 rose 23 cents to $2.92, and deliveries to Tetco M-3 added 24 cents to $2.78.

Gas deliveries to Columbia Gas TCO added 4 cents to $3.99, and packages on Dominion South tacked on 18 cents to $2.48.

Marcellus points firmed. Gas at Transco Leidy changed hands 5 cents higher at $2.33, and parcels on Tennessee Zone 4 Marcellus added 4 cents as well to $2.26.

Producing regions were also in the black. Gas at the NGPL Midcontinent Pool rose 3 cents to $3.85, and packages on Panhandle Eastern were seen 4 cents higher at $3.72. Wednesday gas on OGT rose by 2 cents to $3.74, and gas on ANR SW was up 4 cents to $3.83.

Analysts attribute almost all of Monday's 10-cent gain to warmer weather forecasts but say the impact will be less going forward. "While above-normal temperature expectations through the first week of September are broad-based, deviations from normal don't appear sizable. Furthermore, the temperature factor will be losing pricing punch with the midweek rollover to the October contract as prompt futures," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Monday to clients.

"This market appears capable of maintaining [Monday's] gains and possibly making a run at the $4 mark during the next couple of sessions prior to some expected selling going into the weekly EIA storage report. We will be expecting an injection of 77 Bcf that would imply a further narrowing in the deficit against five-year average levels of almost 20 Bcf. Meanwhile, we feel that any additional price strength will be viewed as an opportunity by the money managers to push further into the short side of this market with the benefit of roll yield with premiums increasing sequentially out to the February futures that trade at about a 28-cent premium against September."

Analysts saw Monday's cash market gains as having little staying power. "Prices ripped higher in the Northeast as a brief heat wave moves into the region, but the gains may last just a couple days," said industry consultant Genscape in a Tuesday morning report. "The heat has pushed today's nominated demand for Appalachia to a three-week high at 9,389 MMcf/d, and a five-week high in New England at 2,173 MMcf/d. As a result, Transco Z6 NY added $0.76 in Monday's trading to reach ($1.23), while AGT (Algonquin Gas Transmission) basis picked up $0.90 to reach ($0.73). The gains are likely to be short-lived, however, as temperatures from western Appalachia to eastern New England quickly return to normals by Thursday."

Forecaster WeatherBELL Analytics is expecting cooling requirements to be somewhat above normal. In a Tuesday morning 20-day Energy Outlook for the next two weeks, nationally it predicts cooling degree day (CDD) accumulations of 149.5, well below last year's 176.9 CDD but above the 30-year average of 136.6 CDD.

"At this time, it appears once again the lesson that the same drivers at one time of year lead to something different as the warm season starts its transition (remember last year's September cold rumors?) [and] is showing itself again," said Joe Bastardi, WeatherBELL meteorologist. "The kind of ENSO [El Nino Southern Oscillation] we have coming does not support eastern cool in September. That doesn't mean there cannot be cool days, but the ratio of cool to warm that we have seen in major CDD areas of the South and East may be opposite in September."

Hurricane Cristobal at 5 p.m. EDT Tuesday was about 460 miles west-southwest of Bermuda and was moving to the north at 15 mph, according to the National Hurricane Center (NHC). Maximum sustained winds were holding at 75 mph, and NHC projected the storm to pass to the west of Bermuda and showed a path with little impact on the U.S. East Coast.

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