September natural gas futures continued to march lower Friday as traders sensed a pall over the market prompted by Thursday’s bearish inventory report, weak economic data and continued discord in Washington over the debt ceiling. At the close September had fallen 9.9 cents to $4.145 and October was down 10.0 cents to $4.157. September crude oil fell $1.74 to $95.70/bbl. For the week September natural gas futures lost 22.5 cents.

According to one trader, the market had expectations of further weakness and seems to have a resolve to continue lower. “The market’s been weak, and I think we were looking to see some lower numbers as it is. Traders liquidated long positions before the weekend, and you finished near the lows,” said a New York floor trader.

The September contract struggled right out of the gate, with the high posting of the day, $4.234, not even making it past Thursday’s settlement at $4.244.

“Five to 10 minutes before the close, we came off 3-4 cents. On the day we only traded about 70,000 contracts on the September, but we traded probably 20,000 contracts the last 40 minutes There is nothing in this market to hold it up. We have had some decent [storage] builds over the last few weeks.” The trader did admit that there was likely to be at least technical support at $4. “That’s a big number.

“If we get another inventory report showing a healthy build, we will see $4 easily. The [Tropical] Storm has been completely discounted.”

From the albeit narrow perspective of temperatures and cooling demand, the likelihood of a relatively stout build may just be in the cards. Thursday’s report of a 43 Bcf injection the prior week was just slightly lower than the five-year average 49 Bcf build. The number was bearish in spite of conditions of extreme heat, but cooling degree day (CDD) forecasts show that from strictly a cooling requirement perspective in major energy markets, this week’s injection report is likely to be much closer if not above the five-year average (47 Bcf).

The National Weather Service reported that for the week ended July 23, New England recorded 88 CDDs, or 44 more than normal, and the Mid-Atlantic states of New York, New Jersey and Pennsylvania endured 112 CDDs, or 53 more than average. The Midwest from Ohio to Wisconsin accumulated 120 CDDs, or 62 more than normal.

If the NWS forecast for the week ended July 30 is on track, major energy markets in the Midwest and Northeast will be relatively cooler and likely to require less gas for power generation. New England is expected to see 65 CDDs, or 20 more than normal, and the Mid-Atlantic is on track to have 82 CDDs, or 23 more than its norm. The Midwest is expected to see 100 CDDs, or 42 more than normal.

Analysts have also noted that hot weather and storage injections have been out of synch recently. Thursday’s 43 Bcf injection report, for example, was ahead of a Reuters poll showing an expected 40 Bcf build.

“This month’s trend of supply increases that appeared out of synch with CDDs suggests other factors at work,” said Jim Ritterbusch of Ritterbusch and Associates. “For instance, production of the horizontal variety appears to be vindicating the EIA’s [Energy Information Administration] recent upward revision for a total production hike of more than 5% this year. Although today’s drilling rig counts could show a decline in gas-directed units, a further uptrend in liquids drilling will keep the production factor alive as a bearish element within the natural gas supply/usage equation.

“It also appears that the U.S. economy is beginning to curtail natural gas demand within the industrial sector. With the industrial segment accounting for some 30% of U.S. consumption, a weakening economy is an important element.”

The 8:30 a.m. EDT Friday report of second quarter gross domestic product (GDP) showed a growth rate less than what analysts were expecting. The Commerce Department estimated that Q2 GDP rose at a thin 1.3%, well behind the Q1 gain of 1.9% and also below market expectations of a 1.9% improvement.

In financial markets analysts noted that the debt-ceiling fumble in Washington is dragging out to the final deadline, which together with very disappointing GDP data, made for a 96-point decline in the Dow to 12,143. Gold made a new high at $1,630/ounce, and continued to get a boost from the debt troubles while Treasuries got help from the GDP data. The 30-year yield fell a very steep 13 basis points to 4.13%.

Supply bulls may see some impact from Tropical Storm Don. The small storm has prompted shut-ins and evacuation of personnel from 56 offshore petroleum platforms Friday as it made its way across the central Gulf of Mexico, according to a Reuters report.

The Bureau of Ocean Energy Management, Regulation and Enforcement said the platforms were evacuated in advance of the storm, shutting in just under 12% of the daily oil production in the Gulf, along with just over 6% of the normal natural gas production. That amounts to about 166,000 bbl of oil and 327 MMcf/d of gas, Reuters said.

At 5 p.m. EDT Friday the National Hurricane Center (NHC) reported that Tropical Storm Don was about 155 miles southeast of Corpus Christi, TX, and was advancing to the west-northwest at 16 mph. It continued to pack 50 mph winds and NHC said it was expected to make landfall in South Texas Friday evening.

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