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September gas bolstered by buying amid oversold conditions

After closing 2.6 cents lower at $2.774/MMBtu ahead of the weekend, NYMEX September natural gas futures revisited the upside in overnight trading leading up to the Monday, Aug. 7, open in renewed buying amid oversold conditions absent any significant fundamental support. At 6:55 a.m. ET (1055 GMT), the contract was 1.2 cents higher at $2.786/MMBtu.

September gas shed value for four out of the five trading sessions in the prior workweek, notching a net 16.7-cent decline and ultimately ending the week at a new five-month low. Sentiment of oversold conditions, however, are beginning to drive fresh gains into the market despite ongoing fundamental weakness.

Although updated temperature outlooks show some heat returning to portions of major demand centers, the ongoing prevalence of milder to cooler conditions in forecasts and the calendar implications on weather suggest limited demand support going forward.

The National Weather Service forecast for the six- to 10-day period reflects average to below-average temperatures across much of the Rockies and nearly the entire eastern two-thirds of the country, containing the scope of above-average temperatures to most of the West, the edges of the Eastern Seaboard and the fringes of the South.

Further out to the eight- to 14-day period, above-average temperatures shrink and shift in scope in the West to settle over the Pacific and a corner of the Northwest, but overtake the upper tier of the Midwest, the entire Northeast, slightly more of the Mid-Atlantic and more portions of the South. Nevertheless, average to below-average temperatures remain dominant, holding over a majority of the West and a reduced but still-large section of the country's eastern two-thirds.

Despite calls for returning heat over parts of key demand regions, analysts with Tudor Pickering Holt & Co. had said that the "combo of peak summer weather now likely in rear-view mirror (last week is historically the hottest of the year) and mild near-term weather forecast effectively removes weather-risk premium."

Lackluster weather-related demand support in coming weeks should allow for natural gas to flow more freely into underground storage facilities, thereby encouraging an acceleration in the rate of weekly storage injections.

Sluggish storage-building throughout much of the refill season thus far continued into the latest inventory report week ended July 28, for which the U.S. Energy Information Administration outlined a net 20-Bcf injection that defied the 3-Bcf pull in the prior year, but trailed consensus estimates that had called for a 25-Bcf build and the 44-Bcf five-year average addition to stocks. It took total working gas stocks to 3,010 Bcf, or 279 Bcf below the year-ago level and 87 Bcf above the five-year average of 2,923 Bcf.

The latest supply/demand data, however, feeds expectations for a reprise of larger storage injections in the subsequent report, as the EIA's "Natural Gas Weekly Update" for the week to Aug. 2 shows an 8% week-on-week decline in power burn that drove a 3% reduction in total U.S. gas consumption. Supply was flat week over week.

Larger additions to stocks in the weeks ahead should keep inventories on track toward a robust level to start the winter heating season. Estimates for end-of-October inventories range from Morgan Stanley analysts' projected consensus of 3.75 Tcf to as much as the 3.94 Tcf forecast by the EIA.

At the cash hubs, the revised natural gas offering moved on Aug. 4 for Saturday-through-Monday flow generally shed value amid pressure from the inclusion of the low-demand weekend days in the altered package.

Among the key delivery locations, the charge lower was led by Transco Zone 6 NY spot gas price action that notched a near 12-cent decline in trades averaging at $1.757/MMBtu. PG&E Gate and Chicago next-day gas prices followed with almost 8-cent losses on average at indexes at $3.181/MMBtu and $2.676/MMBtu, respectively, then benchmark Henry Hub cash gas pricing that faltered by about 2 cents to an index at $2.758/MMBtu.

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In regional terms, Northeast day-ahead gas price activity unraveled nearly 26 cents on the session to average at $2.025/MMBtu, as West Coast spot gas pricing logged a better-than-5-cent reduction in deals averaging at $2.440/MMBtu. Midwest cash gas price action fell by about 9 cents to an index at $2.557/MMBtu, as Gulf Coast next-day gas prices slumped by almost 4 cents on average to an index at $2.675/MMBtu.

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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 and natural gas index prices, as well as forwards and futures, visit our Commodities Pages.