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Widespread Gains Overwhelm Eastern Softness; October Inches Higher

Physical gas for Thursday delivery jumped in Wednesday's trading, with all but a few points in the East registering solid double-digit gains. Healthy advances were seen at western locations as well as California, but the Gulf, Midcontinent and Great Lakes were also winners.

Futures were left in the dust, relatively speaking.

The October contract rose just 1.8 cents to $4.013, and November added a thin 1.4 cents to $4.077. October crude oil shed 46 cents to $94.42/bbl.

In the East and Northeast, steady power loads and firm next-day peak power prices translated into Mid-Atlantic quotes coming in a few pennies lower. ISO New England forecast that Wednesday's peak power load of 15,770 MW would slide to 15,720 MW Thursday before easing to 14,880 MW Friday.

The New York ISO expected the peak power Wednesday of 18,811 MW would rise slightly to 18,849 MW Thursday before dropping to 18,253 MW Friday.

The IntercontinentalExchange reported that next-day peak power at the Massachusetts Hub rose $1.78 to $33.08/MWh, and Thursday peak power at the PJM West terminal gained 50 cents to $37.00/MWh. Next-day peak power in western New York (NYISO Zone A) rose a modest $2.36 to $45.00.

Forecast temperatures up and down the Atlantic Seaboard struggled to make it to normal. Wunderground.com predicted that Boston's high Wednesday of 70 degrees would reach 72 Thursday before dropping to 58 Friday. The seasonal high in Boston is 72. In New York City, Wednesday's expected maximum of 74 was seen rising to 77 Thursday and then dropping to 68 Friday. The normal mid-September high is 75. Washington, DC's Wednesday peak of 75 was anticipated to reach 77 Thursday before easing to 76 Friday. The typical high in Washington this time of year is 79.

Gas headed for New York City on Transco Zone 6 fell 7 cents to $2.47, and deliveries on Tetco M-3 Delivery shed 4 cents to $2.44.

Packages on Dominion South were unchanged at $2.37, and on Millennium gas changed hands at $2.39, down 2 cents.

New England next-day gas was firm. Gas at the Algonquin Citygates added 5 cents to $2.64, and deliveries to Iroquois Waddington gained 14 cents to $3.37.

In the West, strong gains were posted. Next-day gas at Malin added 12 cents to $4.03, and at the PG&E Citygates parcels for Thursday delivery gained 13 cents to $4.58. At the SoCal Citygates,Thursday gas added 13 cents to $4.55, and at the SoCal Border gas changed hands at $4.28, higher by 14 cents. On El Paso S Mainline,next-day gas was seen at $4.39, up 14 cents.

Rockies delivery points followed the strength in California markets. Gas on CIG traded 13 cents higher at $3.87, and at the Cheyenne Hub, next-day packages were seen at $3.96, up 14 cents. Kern River Delivery was quoted 15 cents higher at $3.96, and at Opal, gas changed hands 14 cents higher at $3.96.

Drew Wozniak, vice president of market research at United ICAP, sees the natural gas futures in "more of a cyclic move without a more fundamental driver. The battle between the big storage builds and the below-five-year average level into next month has not been broken.

“In this dead heat, the $3.76-4.10 range should remain in place for a while, with the $3.786-4.041 range residing at the market’s core."

One fundamental price driver that is sure to be felt is Thursday's Energy Information Administration's weekly storage report. Expectations are for a plump increase, much higher than last year's 49 Bcf and a five-year average of 71 Bcf.

Analysts at United ICAP predict a 89 Bcf build, while Ritterbusch and Associates is calling for an increase of 95 Bcf. A Reuters poll of 29 traders and analysts showed an average 90 Bcf with a range of 81 Bcf to 96 Bcf.

Observers saw Tuesday's gains as possibly portending a seasonal advance. "In our view, however, the [6-cent] rally looked like the market's latest attempt at an upside technical breakout that would represent the kickoff to a more sustained seasonal advance," said Tim Evans of Citi Futures Perspective in closing comments Tuesday. "A report that nuclear plant refueling outages this fall would be the most since 2012 may have also supported the gains.

"[T]his is a time of year without much heating or cooling demand, and substantial storage injections. The consensus on Thursday's DOE storage report for the week ended Sept. 12 is still in development, but early editions of major newswire surveys suggest it is currently in the vicinity of 92-93 Bcf, a bit less than our model's 96 Bcf estimate but still well above the 71 Bcf five-year average for the date.

“If the market is to extend its push higher, it will also have to do so in the face of some further, seasonally large storage injections well above the five-year average rates."

Evans’ forecast shows injections building to as high as 129 Bcf for the week of Oct. 3 and the year-on-five-year deficit contracting to 337 Bcf.

"While it is possible for the market to work its way higher in the face of these bearish comparisons on the basis that they have already been discounted into the price, and that storage levels will remain relatively light with winter heating demand just ahead, we continue to see risk that the rally attempt proves premature, with prices breaking back to the downside, and possibly making new lows this time," Evans said.

He is looking to buy November natural gas on a limit order at $3.73 and if filled work a protective stop at $3.48.

A technical breakout may just be in the cards. "[We] see $4.028-4.029-4.040-4.051 as the gatekeeper," said Brian LaRose, technical analyst at United ICAP following the market's close Tuesday. "Carve out a top into this zone and we will be looking for an ABC pattern to develop off the $4.101 high. Blow through this zone, and A=C objectives from $3.724 will be our next upside targets [a full] "a"="c" targets 4.132-4.197. 1.618 "a"="c" is up at $4.371. Based on the technicals, the bulls should be able to punch through resistance."

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