Continuing to ride the downward futures momentum from Thursday, cash points cratered another 15-65 cents on Friday, leaving Henry Hub cash about flat to the screen as of the end of the cash trading session. The vast majority of points were down 20-40 cents. However, natural gas futures then proceeded to follow crude oil higher, ending the day up 18.3 cents to $9.111.

The largest cash declines were seen in the Midcontinent and Gulf Coast regions, which came as somewhat of a surprise to some traders because of the continuing triple-digit heat that was still baking cities in Arkansas, Oklahoma, Texas, Kansas and surrounding states. Little Rock, for example was expected to see a heat index of 111 while Wichita was as high as 105.

Meanwhile, the highs were tapering off elsewhere. Temperatures were much below normal in parts of the Upper Midwest, northern Rockies and in New England. Boston, for example, was expected to see a high of 77 with rain on Saturday. However the heat was expected to return to New England on Sunday. The forecast for Boston was 90 degrees for Sunday. High temperatures also remained slightly below normal Friday in California and other parts of the West and Southwest.

“The supply-demand balance is still pretty tight because of the heat, but I think once you see temperatures moderate you actually will see supply and demand in a much looser situation than many people expect, but that’s not actually going to happen until the heat really abates,” said Citigroup analyst Kyle Cooper. “It’s still pretty warm, but temperatures are abating a little bit in some locations and that’s why you are seeing prices begin to fall.

“I keep my own proprietary weather data and it shows that this has been the hottest June-through-August period since 1971. I’ve heard that NOAA will probably end up ranking this June through August as the third hottest since 1895. It’s been a barn burner, and it has been bullish, no doubt about it. So there’s a reason for these high prices.”

However, Cooper said current underlying fundamentals have been masked by the heat and may end up catching people off guard in the next several weeks. “You had better be careful because in my opinion 95-105% of that market tightness is due solely to temperature,” he said. If mother nature suddenly becomes bearish, storage inventories probably will move higher very quickly. Cooper expects the market to further weaken once it swallows a couple weeks of 75-85 Bcf injections again, which will be possible early next month.

“Prices have a lot of downside, especially from $9.10. Be careful to not extrapolate this current tightness going forward,” he warned.

A lot also will depend on where crude oil futures prices will be and what happens in the rest of the hurricane season. Currently there is no tropical weather to speak of. But crude oil settled $2.08 higher on Friday at $65.35.

Current weather forecasts show above normal temperatures for the next several weeks but then below normal temperatures possibly arriving by mid September just when it might start to become bullish to have below normal temperatures, Cooper said.

While the Midcontinent is steaming hot currently, the latest six- to 10-day forecast has a large area of below normal temperatures over the entire midsection of the country, stretching down over Louisiana and nearly to the Canadian border in North Dakota. Above normal temperatures are expected to return to New England and the Great Lakes and are expected to bake the West Coast and Southwest again. Florida also is expected to remain hotter than normal. The eight- to 14-day predictions are very similar.

“It looks like we’re going to get one last injection of heat into the Northeast in the last week of August,” said a regional marketer. “I think people up here are starting to load up on some gas while it’s cheap and will ride that into the end of the month.”

Henry Hub cash traded flat to the screen Friday, which was a lot different than the 10- to 20-cent premiums over the last couple weeks. New England basis actually came back out to about plus 30-40 cents for the weekend. “Basis had tightened all the way down to about 15 cents Thursday and that prompted everyone to buy it and put gas in the pipe again,” said the New England marketer. “That drove basis back out.”

A Midwest marketer said there were some attractive spreads to play if you had the transport Friday. Chicago was trading mainly in the $8.60s while MichCon traded around $9.00. “If you have any excess ANR capacity you could certainly move gas from Chicago to MichCon very easily and make some pretty good returns on that,” he said. “Commodity costs on ANR are next to nothing, about a penny, and fuel costs are about 1.4% so you can certainly move that gas from Chicago to MichCon and make about 20 cents. There are people in Michigan putting gas into storage. Quite a bit traded there.”

South Texas activity left a few traders with headaches Friday. “I’ve heard that some people were getting cut on Tennessee in South Texas or were having to jump through hoops,” said a Gulf Coast producer. Due to high linepack and in order to maintain operational integrity, Tennessee Gas issuing a Critical Day 1 operational flow order (OFO) for Saturday’s gas flow in Zone 0. Balancing parties in Zone 0 were required to maintain an actual daily flow rate not exceeding a 2% of scheduled quantities or 1,000 Dths, whichever is greater. And Tennessee warned that violators would be charged $5.00 plus the applicable regional daily spot price per dekatherm. Tennessee also warned that it might have to issue a Critical Day 2 OFO if the situation did not improve.

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