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In spite of heat, natural gas breaks sideways range on the downside

Augustnatural gas futures gave up on their effort to maintain the recent sidewaystrading direction in action on July 20, as prices fell 7.0 cents during thesession and settled at $2.658/MMBtu.

Aftertrading up to $2.730/MMBtu in the morning electronic session, prices fellsteadily through the early trading hours before leveling off and reaching a lowat $2.655/MMBtu late in the session.

Thelow of the day matched the low made on June 24 and held slightly above keysupport from the high made on Jan. 11 at $2.650/MMBtu.

Priceshave shown reluctance to fall in recent weeks, with strong support offered byforecasts that predict a likelihood of above-normal temperatures taking placeover the next two weeks. Daily high temperatures are expected to reach tripledigits across the Great Plains and central Texas through the end of the weekbefore some moderation takes place.

Thelatest forecast from the National Weather Service shows that moderation maytake place in the West North Central region in both the six- to 10-day andeight- to 14-day outlooks.

Thehigh temperatures that the natural gas market must go through before themoderation occurs could help to create a bullish reaction to the inventoryfigures from the U.S. Energy Information Administration on July 21.

"Ithink if we break toward $2.60 in the September contract before the inventorynumber, we can rebound toward $3.10," John Turner, senior trader atHeritage West Financial, told S&P Global Market Intelligence. "All ofthis demand from peaker plants for additional electricity should be bullish."

Theneed for increased natural gas-fired electricity generation has led forecastersto anticipate a buildin inventory levels of only 37 Bcf in the week ended July 15, according to asurvey of analysts. The range of estimates spans injections from 33 Bcf to 39Bcf.

Abuild of that size would bring inventories to 3,280 Bcf and would shrink thesurplus to the five-year average to 562 Bcf from 586 Bcf last week. Theweakness in prices on Wednesday, however, showed that the market is lookingpast the potentially smaller-than-normal build this week and toward thelikelihood that inventory levels at the end of the injection season reachrecord levels.

TheEIA expects inventorylevels to reach a record 4,022 Bcf at the end of October, according to thelatest "Short-Term Energy Outlook."

"Iam maintaining my Nat Gas view and bias at neutral as the market is currentlystruggling to move into a new up leg," Energy Management Instituteprincipal Dominick Chirichella said in a note July 18. "The market remainssurplus but the inventory overhang is narrowing as the injection season iscontinuing to underperform versus the historical data."

Incash markets, prices for Thursday delivery generally moved in a lower directionalthough there were some pockets of strength.

TranscoZone 6 NY was one of the examples of higher prices, with the market advancingmore than 30 cents to an index level above $2.20/MMBtu. TETCO-M3 gained acouple of cents on the day and was quoted slightly above $1.50/MMBtu.

Inthe Midwest, prices at Chicago fell around a nickel to slightly above$2.70/MMBtu, while on the Gulf Coast, prices at Henry Hub were also indicatednear $2.70/MMBtu but fell between 5 cents and 10 cents from the prior day.

Onthe West Coast, SoCal Border dropped about 1 cent to the low $2.80s, and Malinlost more than 5 cents to trade near $2.65/MMBtu.

Market prices and includedindustry data are current as of the time of publication and are subject tochange. For more detailed market data, including powerand naturalgas index prices, as well as forwardsand futures,visit our Commodities Pages.