August natural gas declined slightly Wednesday as algorithmic traders showed little interest in purchases at current prices and the market awaits the release of government inventory figures. August had fallen 3.3 cents to $4.500 and September had skidded 4.2 cents to $4.469. August crude oil gained 64 cents to $98.14/bbl.

Traders using quantitative models to make their trading decisions need prices to move slightly higher before taking a long position. “I would consider going long natural gas with a close over $4.55, but I haven’t had a [natural gas] position on in some time,” said an Oklahoma City trader.

“At $4.30 I would consider going short, but I don’t understand why there is so much movement in some of these markets, but for some reason natural gas has gone nowhere. You would think outside markets would have some influence and would contribute to the ups and downs. You look at the grains, gold and crude and they seem to be getting all the action.”

The trader noted the last two week’s “misses” by analysts forecasting the weekly inventory injections were not uncommon, and “they have their methods of data gathering, but it’s just an estimate, really. It’s always good to know what the market is looking for because otherwise the number doesn’t mean too much.”

Estimates of Thursday’s Energy Information Administration storage report for the week ended July 15 vary widely.

Tim Evans at Citi Futures Perspective in New York expects a 72 Bcf build, well ahead of last year’s 55 Bcf injection and a five-year average increase of 67 Bcf. “We’re anticipating 72 Bcf in net injections on strong supply that has been offsetting much of the impact of warmer-than-normal temperatures. There are some lower estimates for an injection of less than 60 Bcf in circulation, but we note such whisper numbers would also make a lower figure look somewhat less supportive since at least some segment of the market would view a lower injection as expected, and not so much as a bullish surprise.”

Kyle Cooper of IAF Advisors in Houston predicts a build of 54 Bcf and Jim Ritterbusch of Ritterbusch and Associates forecasts a 55 Bcf increase. A Reuters survey of 25 analysts and traders revealed an average 62 Bcf with a sample range from 50 Bcf to 80 Bcf.

All indications are that last week’s injection will have a hard time making a dent in the 218 Bcf storage deficit relative to last year and the 52 Bcf shortfall relative to the five-year average inventory, but analysts see plentiful supplies of natural gas and at the same time expect brutal heat and humidity throughout major energy markets in the East and Midwest to maintain a firm tone to the market.

“There is no shortage of natural gas, either from current production or from storage,” said Peter Beutel, president of Cameron Hanover. “Strictly speaking, we are in an injection month, or at that time of year when we are supposed to be injecting natural gas into storage for next winter. If we need it now, we certainly will be able to get it.

“Prices are already overbought and up at unsustainably high levels because of the current readings, but they still have next week’s [storage] report. It could be wildly bullish and could even show a drawdown of stocks. Having said that, though, all else being equal, this heat wave is going to increase prices. We will not run out of natural gas, though.”

Prices have already increased sharply. According to NGI’s Daily Gas Price Index, spot gas Tuesday at Transco Zone 6-New York jumped $1.28 to $6.73 and the Algonquin citygate vaulted 62 cents to $6.17.

Weather remains the dominant price driver. “Temperatures are expected to moderate some next week. It is not yet clear if they will turn hotter again, though, after that. The next few temperature forecasts promise to be some of the more important ones this market has had. Prices are overbought enough to sell off from here,” Beutel said in a morning note to clients.

Forecaster WSI Corp. of Andover, MA, said Wednesday morning’s forecast is “a tad” warmer than Tuesday’s projections. In its six- to 10-day forecast it shows above-normal temperatures from eastern Colorado to West Virginia and as far south as northern Louisiana. “With the exception of the Northeast and Gulf Coast, above-normal temperatures are forecast over the central and eastern U.S. Anomalies as warm as five to eight degrees above normal are anticipated over the Midwest and Mississippi Valley.

“Temperatures may trend warmer over most of the central and eastern U.S. than currently forecast. After a brief cool-down early next week, all models depict a rebuilding sub-tropical ridge over the eastern U.S. and suggest mid-summer warmth will redevelop in the East late next week.”

At 5 p.m. EDT Wednesday the National Hurricane Center (NHC) reported Tropical Storm Bret was headed to the central Atlantic at 8 mph from its location 270 miles south-southeast of Cape Hatteras, NC. NHC also reported Tropical Storm Cindy 1,495 miles west of the Azores moving to the northeast at 24 mph.

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