The physical natural gas market continued its trek lower losing 4 cents on average overall Wednesday. Losses were close to a nickel in the Midwest, about 3 cents in the Midcontinent and about a nickel lower at most major market centers. At the close of futures trading September had posted a new five-month low closing at $3.247, down 7.1 cents on the day. October also dropped 7.1 cents to $3.272. September crude oil fell 93 cents to $104.37/bbl.

Midwest gas buyers reported that they had done much of their buying earlier and for the moment weren’t jumping on the latest round of price declines to add to supplies. “We didn’t buy a lot at August index, but we did buy last week,” said a Michigan marketer.

“If the weather holds as predicted, we could be looking at still lower prices. We don’t want to buy too much gas and have the prices go down. The customers will say ‘Why did you do that?’ It’s so easy to say when you are just looking back.” meteorologist Alex Sosnowski, said “For portions of the Midwest and the Northeast, the current cool weather pattern will have staying power through the third week of August. No heat waves are forecast through the middle of the month from the Upper Midwest to the Northeast. While the pattern will have some warm and humid days, they will tend to be brief. The pattern will make working outdoors more enjoyable and less risky.”

Sosnowski is expecting “High temperatures [to] generally range from the middle 70s to the middle 80s in the major cities and on the beaches with highs close to 70 at times in the mountains. Heat will continue over Texas and much of the South Central states, while expanding to part of Deep South.”

Temperatures throughout the Midwest are expected to remain below normal, according to Minneapolis MN’s high Wednesday of 76 is anticipated to hold at 76 Thursday before easing to 74 on Friday. The normal high in Minneapolis is 82. Chicago’s Wednesday high of 88 was predicted to slide to 79 Thursday before making it to 80 on Friday. The typical high in Chicago this time of year is 83. Detroit’s 84 Wednesday high was anticipated to drop to 80 on Thursday and Friday. The seasonal high in Detroit is 82.

Quotes on Alliance for Thursday delivery fell 6 cents to $3.41 and gas at the Chicago Citygates eased 2 cents to $3.42. On Consumers next-day deliveries were seen at $3.51, down 3 cents and on Michcon gas for Thursday delivery came in at $3.48, down 3 cents. At Dawn next-day gas slid 7 cents to $3.73.

Quotes in the Midcontinent eased a few pennies. Deliveries on ANR SW fell about 4 cents to $3.24 and gas on NGPL Midcontinent shed 3 cents to $3.24. On OGT Thursday packages were off 4 cents to $3.20 and on Panhandle Eastern Thursday gas was seen at $3.17, down a penny.

Given recent cool weather it probably shouldn’t come as much of a surprise that power demand fell sharply in July. According to Genscape average daily demand fell 3% in July when compared to 2012, and when put in historical context July’s estimated 404,609 GWh is the lowest July total since 2009 (372,542 GWh) (see related story).

Genscape reported that “after a slow start to the month, temperatures for much of the country warmed into the mid-month period, driving what is likely to be the summer peak demand for the Midwest and the Eastern U.S. However, the heat wave collapsed and the below average temperatures that followed for the eastern half of the United States helped to push demand rapidly downward. For the month, warmer than average anomalies were limited to the Northeast and the Western US.”

Futures traders saw an ongoing erosion of prices throughout the day. “It was just a gradual decline throughout the day. It’s all computer driven and if stop loss orders go off, you don’t see it,” said a New York floor trader. I don’t think people show their stops any more. They just go in and sell rather than putting in stop loss orders. It seems that if they put in sell stops, the computer just goes for them all the time.”

Selling may be in play Thursday after the Energy Information Administration releases its weekly storage report. Expectations are for a build far in excess of historical averages. A year ago 25 Bcf was injected and the five-year average stands at 42 Bcf. Industry consultant Bentek Energy utilizing its flow model predicts an 81 Bcf increase and IAF Advisors of Houston is looking for a 80 Bcf increase. Ritterbusch and Associates calculates an 81 Bcf gain as well.

Tim Evans of Citi Futures Perspective characterized the market’s action Tuesday as idling with “most traders waiting for fresh developments before taking more urgent action. Assuming the temperature outlook continues to evolve gently, that could mean no burst of activity until Thursday’s DOE storage report.”

Evans sees his estimate for Thursday’s storage report at 69 Bcf as having bullish implications inasmuch as his data shows consensus estimates closer to a 75 Bcf build. “Our own model based on recent storage flows and the cooling degree day accumulations remains at 69 Bcf, suggesting perhaps some chance of a bullish result relative to the higher expectations. That said, even a 69 Bcf refill would look bearish alongside the date-adjusted 25 Bcf build from a year ago and the 42 Bcf five-year net injection.”

Evans forecasts that by Aug. 23 the present 34 Bcf year-on-five-year deficit will have flipped to an 18 Bcf surplus. “While not necessarily a compellingly bearish story, we view this projected further weakening of fundamentals as consistent with a further decline in natural gas prices.”

Evans suggests holding on to a short September natural gas position initiated from $3.62 with a protective buy stop at $3.52 to hold on to profits on the trade.

Addison Armstrong of Tradition Energy sees the natural gas market under pressure from weak seasonal fundamentals and near-record production levels of gas continu[ing] to depress the market. “Prices have now fallen in nine out of the past 10 trading days as the market continues to search for a bottom. Weather forecasts continue to provide little support for the gas market, with normal to below-normal temperatures expected across the East in the coming weeks. Forecasts for Texas remain the exception, with normal to above-normal temps expected across the Lone Star state in the coming weeks.”