Cash prices saw a few instances of flat to moderately higher numbers Tuesday amid an overall slippage that ranged from 2-3 cents to about 30 cents. The sell-off in the futures market slowed Tuesday with the near-month contract dropping only 6.6 cents to $7.586. Quotes were generally only a few pennies lower in the Northeast with slightly larger drops in the Midcontinent, Midwest and Gulf Coast regions, but some western points slid more than 20 cents.

The three “Hs” — heat, humidity and Hurricane Emily — continued to provide market support. While the center of Emily should remain south of most offshore production facilities, tropical storm force winds are widespread and producers clearly were taking no chances Tuesday.

Emily continued to get better organized as it approached the Texas/Mexico coastal border area, and the National Hurricane Center (NHC) expected it to become a major Category Three hurricane (111-130 mph winds) before landfall. A hurricane warning was in effect for the lower Texas coast from Port Mansfield southward to the border. A tropical storm warning and hurricane watch remained in effect from Port Mansfield to Baffin Bay, TX.

As of 4 p.m. CDT Emily had maximum sustained winds of 100 mph (Category Two) and its center was about 145 miles east-southeast of La Pesca, Mexico and 160 miles southeast of Brownsville, TX. Emily was moving west-northwest at nearly 12 mph with a gradual turn to the west expected late Tuesday night or Wednesday morning. Coastal storm surge flooding of 7-10 feet above normal tide levels could be expected near and to the north of where the center makes landfall, NHC said.

The Minerals Management Service (MMS) reported that 651.51 MMcf/d of Gulf of Mexico gas production and 113,115 bbl/d of oil was shut in due to Emily as of 11:30 a.m. Tuesday. MMS said 88 platforms and 24 rigs were evacuated based on reports from 25 companies. The evacuations were the equivalent of 11% of the 819 manned platforms and 18% of the rigs in the Gulf. Cumulative shut in production due to Emily was up to 0.71 Bcf of gas and 125,966 bbl of oil.

Apache Corp. reported that it shut in 82 MMcf/d of gas and 6,400 bbl/d of oil, while Shell said it shut in 220 MMcf/d of gas and 4,000 bbl/d of crude. Transcontinental Gas Pipe Line said supply reductions into its pipeline system rose to about 400 MMcf/d because of Emily.

Although it appeared that Emily would land south of the Texas border, the Weather 2000 consulting firm offered this cautionary note: “Her slower forward speed pushes off her likely landfall in extreme northeastern Mexico to early Wednesday morning now, but also raises the prospect of a creeping motion or erratic floating as she approaches the coastline. We saw this with Charley last year as he both angled further south (into Port Charlotte) than his approach vector had indicated, and intensified as he was making landfall (an uncommon scenario). We wanted to bring this to your attention because our fluid-dynamic research leaves open the possibility of Emily approaching the coastline, intensifying, and then perhaps creeping northward a little paralleling the shoreline (or taking a funky jog southward).

“In a thermodynamic sense we know hurricanes yearn to stay over warm waters, so the interplay of Emily’s intensity, her eye wall generation, the atmospheric steering currents and the [Outer] Continental Shelf over the next 12-24 hours creates a three-dimensional tug-o-war, making it still very difficult to pinpoint the exact location her eye will make complete landfall. In any event, the dividing line of Mexico and Texas should not be viewed as an all-or-nothing situation with regards to severe weather, as hurricanes have no regard for national boundaries (and appropriately so a hurricane watch extends up through Baffin Bay TX).”

Meanwhile, the heat and humidity continued to push heat indexes well over 90 degrees across most of the country, according to National Weather Service data. All-time record highs were broken in the Southwest. Las Vegas was expected to reach a toasty 117 Tuesday. Temperatures at other locations in the region should top 120 Wednesday.

Northeast citygates are getting some support from record-setting power usage in the region. Both ISO New England and the New York Independent System Operator reported all-time highs for electricity demand Tuesday in their respective grids. More locally, Con Edison in New York City saw its own record peak and Long Island Power Authority said it set a summertime demand record (see story in Power Market Today).

A warm and humid air mass also encompasses the eastern third of the nation, maintaining 90-degree heat and keeping pressure on the eastern power grid. However, a cold front is expected to usher in cooler and less humid air beginning with the northern Plains and Upper Midwest. Minnesota had high temperatures in the mid 90s Monday but were expected to reach only the low 70s Tuesday. That front should slowly makes its way east.

“There haven’t been too many summers where it has been this hot everywhere,” noted a Northeastern utility buyer. “You have a lot of generation running now, plus there’s even more demand today for power load. I think this bodes for continued high prices despite the current sell-off, which appears to have stalled.

“With prices where they are and with the hurricanes and a pretty healthy storage refill through baseload supply, we’ve been out of the market,” he said. “The baseload quantity for July set us on the path where we needed to be in storage so given the flare up in prices the last few weeks, we’ve tried to stay out of it. The hurricanes have disrupted supply and we would rather avoid having to mess with that. I would think prices will remain strong given the current state of fundamentals.”

Another Northeastern buyer said he believes there won’t be much of a weather change until the weekend. “We’re not looking for a break in the weather until Saturday so I would anticipate prices to stay as strong as they are at least for the next couple days.”

Along with the heat and hurricanes, gas storage levels may soon join the group of bullish factors. With power generators running full tilt across most of the nation to serve cooling demand, and producers shutting in production three weeks in a row, the next couple of storage reports may take a chunk out of the current storage surplus.

“I think we’re in store for a couple low storage injections coming up. It should be interesting,” a Gulf Coast marketer said.

Pre-report expectations are quite varied. Tim Evans of IFR Energy Services said he’s expecting an injection between 40 and 50 Bcf and Kyle Cooper of Citigroup is forecasting a 52-62 Bcf injection. ICAP’s pre-auction implied market forecast is 50 Bcf and the injection during the same week last year was 72 Bcf. Enercast said it looks for a build of 66 Bcf.

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