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October natural gas ends its run on the defensive

Octobernatural gas futures rolled off the board at the close of business Wednesday,Sept. 28, on the negative side of the ledger. Profit taking supported thelosses ahead of expiration as fundamentals signal limited demand and a healthyend-of-season inventory. The contract finished its run 4.4 cents lower at$2.952/MMBtu.

Novembernatural gas takes the lead from the now expired October contract and will beginits run on the defensive having shed 4.8 cents to settle at $3.002/MMBtu.

Thelatest weather forecasts continue to support lackluster demand through themidrange period as above-average temperatures are expected to grip the easternhalf of the country through early October.

Above-averagetemperatures during the fall season should still equate to lower hightemperatures, while longer range forecasts that project mild conditions acrossthe bulk of the country through the winter heating season, save for in theNortheast where significant cold is expected, should keep overall demand fornatural gas for both late cooling and early winter heating at bay.

Evidenceof declining demand has been presented by the U.S. Energy Information Administrationin recent weekly reviews. The latest data for the review week to Sept. 21showed total U.S. consumption of natural gas was unchanged averaging 59.4Bcf/d, with power burn down 3% week over week and industrial sector consumptionsteady at an average of 19.4 Bcf/d. Natural gas exports to Mexico decreased 5%.

Asdemand falters with milder weather, storage injections are expected to improvein the coming weeks following the upcoming inventory report due out at 10:30a.m. ET on Thursday, Sept. 29.

Thedata is expected tooutline an injection of between 50 Bcf and 59 Bcf according to our survey ofanalysts and traders, while a consensus is formed at a 54-Bcf build to stocksfor the review week to Sept. 23.

Abuild within the range of projections would continue the trend of weeklydownside misses against historical average builds, including the 97-Bcffive-year-average injection and the 99-Bcf build reported for the correspondingweek in 2015.

Atthe consensus, natural gas inventories would improve to 3,605 Bcf, whilestorage overhangs will be cut to 225 Bcf above the five-year average and just95 Bcf above the year-ago level with only about four weeks left of the titularinjection season, which ends on Oct. 31.

Thetrimming of the storage overhangs and possibility that the total working gassupply will fail to reach the record high level of 4,042 Bcf anticipated by theEIA is providing some support for the market, limiting the downside andallowing for a shift in sentiment to increasingly bullish, as higher lows andhigher highs are reached.

Day-aheadtrade was influenced by the losses in futures and by lower demand anticipateddue to weather changes across major portions of the country.

Inthe Northeast, Transco Zone 6 NY trades slipped about 10 cents to an indexaround 85 cents and Tetco-M3 trades were about 5 cents lower to an index below80 cents. At the benchmark, Henry Hub trades neared a $2.95 average, about 5cents lower on the session, while Waha trades were about 10 cents lower to anindex near $2.80. At Chicago, the market gave back about 10 cents to an indexnear $2.85. Across the West, SoCal Border trades were about 10 cents lower toan index near $2.80 and PG&E Gate fell about 5 cents on average to around$3.40.

Market prices and includedindustry data are current as of the time of publication and are subject tochange. For more detailed market data, including our power,naturalgas and coalindex prices, as well as forwardsand futures,visit our Commodities Pages. To view detailed EIA Weekly Natural Gas Storagedata, go to our Natural GasStorage Page.