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Short covering lifts September natural gas as eyes turn to storage

NYMEX September natural gas futures continued to advance in the midweek session Wednesday, Aug. 9, as traders looked to the likelihood of another below-normal storage injection in the weekly inventory report set for release on Aug. 10.

The front-month contract began the day near flat but pushed higher throughout the day, ultimately testing $2.90/MMBtu resistance to settle 6.1 cents higher on the day at $2.883/MMBtu.

A proprietary survey of traders and analysts indicates a net injection of about 36 Bcf for the week ended Aug. 4, which would best the 24-Bcf build reported in the same week last year but would fall short of the five-year average of 54 Bcf for the week.

"The natural gas market is probing the upside on apparent short covering ahead of Thursday's DOE storage report for the week ended August 4," Citi Futures analyst Tim Evans said in an Aug. 9 email to clients.

Weekly storage injections have trailed the five-year average throughout much of the refill season thus far. However, prices could resume their descent amid the overall health of supply and prospects that diminished weather-related demand should allow for near-record inventories by the end of injection season.

Total working gas stocks sit at 3,010 Bcf the week ended July 28, marking only the third time that inventories breached the 3,000-Bcf mark this early in the refill season.

Despite the sluggish pace of storage rebuilding, current inventories look to be on track toward a near-record level by the end of the injection season, which traditionally runs through the close of October. The latest Short-Term Energy Outlook from the U.S. Energy Information Administration projects that total inventories will likely top 3,900 Bcf by the end of October.

Farther out, weather forecasts spell lackluster demand that should allow for larger storage injections that would keep inventories on a path toward the anticipated robust end-of-season level.

"Today's temperature forecast is similar to a day ago, suggesting near-average storage injections for the weeks ending August 11 and August 18," Evans said.

Updated National Weather Service projections reflect average to below-average temperatures across nearly the entire country through both the six- to 10-day and eight- to 14-day periods. Above-average temperatures settle over the fringes of the Northeast, Florida, upper edges of the Midwest, southern Texas and a section of California in the shorter-range view, before slightly expanding in scope but still ultimately remaining contained to much of the Northeast, Florida, a few parts of the central U.S. and portions of the Southwest.

At the spot market, prices across most of the U.S. pushed higher by as much as 10 cents reflecting the rebound in the futures complex as well as warmer weather supporting cooling demand.

Northeast markets posted some of the only losses, as Transco Zone 6 New York and Tetco M3 slid about 10 cents apiece to indexes near $1.75 and $1.60, respectively.

Elsewhere, the Chicago market increased close to 10 cents to average near $2.80 and Henry Hub in Louisiana added a similar amount to near $2.85. In the West, PG&E Gate added about 5 cents to an index near $3.25, while Malin added more than 15 cents to average near $2.70.

Market prices and included industry data are current as of the time of publication and are subject to change. For more detailed market data, including power, natural gas and coal index prices, as well as forwards and futures, visit our Commodities Pages.