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Overall Gains Offset Marcellus Weakness; Futures Mark Four Wins in A Row

Buyers for weekend and Monday gas on Friday lost no time submitting their bids as temperatures in eastern markets were expected to reach above 80 degrees by Monday and on-peak power posted double-digit gains. But, as some traders focused on the heat, reports were coming in of increased price-related production shut-ins clouding the horizon.

The overall market added 7 cents to $2.43, but some Gulf, Midwest and Midcontinent points were up by more than a dime on average. Futures continued to advance and made it four straight days of gains. At the close June had advanced 2.5 cents to $2.776 and July was up by 2.9 cents to $2.831. June crude oil fell 48 cents to $59.15/bbl.

Physical prices in the Gulf, Midwest and some eastern points rose as on-peak power quotes posted solid gains, and temperatures in New York and Philadelphia were forecast to be above 80 degrees by Monday. Intercontinental Exchange reported that on-peak Monday power at the ISO New England's Massachusetts Hub rose $3.31 to $26.76/MWh and on-peak power at the New York ISO's Zone G delivery point (eastern New York) added $4.29 to $32.29/MWh. Monday on-peak power at the PJM West Hub jumped $14.42 to $45.11/MWh.

Gas for weekend and Monday delivery on Transco Zone 6 into New York City rose 4 cents to $2.65, and packages to southeasternmost Pennsylvania and southern New Jersey on Transco non-New York North added 5 cents to $2.65.

Marcellus points were not so fortunate and some began flirting with sub $1 quotes. Gas on Millennium shed 10 cents to $1.30, and parcels on Transco Leidy were seen 31 cents lower at $1.11. Gas on Tennessee Zone 4 Marcellus fell 28 cents to 96 cents, and gas on Dominion South fell a dime to $1.39.

Sub $1 gas in the Marcellus may become more prevalent as major construction and associated curtailments get under way. In a report, industry consultant Genscape said, "Transco plans to initiate construction on its Leidy Southeast Expansion project on May 1st and continue through June 12th. The expansion will add 510 MMcf/d of new capacity on the Leidy Line to help move Marcellus gas to Mid-Atlantic and Southeast markets.

"Transco has noted it will have limited flexibility to transport gas from Leidy and associated receipt locations to the Station 210 pool area and other markets east of Transco Leidy Station 505. During the event, capacity through Leidy Station 505 will be reduced to 2,225 MMcf/d, a [drop of] 524 MMcf/d of capacity from the normal design capacity of 2,749 MMcf/d."

That capacity may not be missed. New reports of price-related shut-ins were confirmed last week. Williams CEO Alan Armstrong said Thursday customers including Cabot Oil & Gas Corp. plan to curtail 300-500 MMcf/d for five or six months (see Shale DailyMay 1a).

Management with National Fuel Gas Supply Corp. said the exploration arm Seneca Resources Corp. curtailed 150 MMcfe/d in the fiscal second quarter after shutting in 200 MMcf/d early this year (see Shale Daily, May 1b).Through this year Chesapeake Energy Corp. has said it would curtail 250 MMcf/d from Appalachia.

If available, that Marcellus gas may look pretty attractive by early next week as temperatures are forecast to warm considerably. Forecaster Wunderground.com predicted that Friday's high of 64 in New York City would rise to 67 by Saturday and reach 82 Monday. The normal high in the Big Apple in early May is 67. Philadelphia's Friday high of 63 was anticipated to climb to 73 Saturday and jump to 84 by Monday. The normal high in Philadelphia is 67.

The National Weather Service in suburban Philadelphia said by Sunday and Monday "a substantial warming trend expected heading into the new work week with a building southeast U.S. Ridge. Temperatures climb toward the double-digit mark by Monday, with a more pronounced return flow setting up with the surface high sitting offshore. Temperatures both days are expected to be above normal, with Monday flirting with the 80 F mark. Things should be pretty well capped so expect a dry period during this time frame."

Gulf and Midwest points firmed. Deliveries to ANR SE were quoted 14 cents higher at $2.62, and packages on Columbia Gulf Mainline added 13 cents to $2.63. Gas at the Henry Hub rose 10 cents to $2.67, and gas at Katy was quoted 11 cents higher at $2.63.

Deliveries to Alliance and the Chicago Citygates both rose a dime to $2.65 and $2.67, respectively, and gas on Consumers gained 16 cents to $2.89. Parcels on Michcon changed hands at $2.89, up 15 cents.

Top traders suggest waiting for a market correction to add to any long futures positions. "While this market saw another strong advance [Thursday] that was larger than we had expected, the magnitude of the 20-cent price pop over the past two sessions reinforces our assumption that the funds are almost fully allocated to the short side and are looking for even minor reasons to accept partial profits," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Thursday. "The price action also reinforces our opinion that a $3 price handle will be established come June, probably within the late summer contracts.

"While an argument can be made that the response to the reported 81 Bcf storage injection was an overreaction, given proximity to our expected 85 Bcf build, we feel that this market is set up for a strong finish to this week's trade. We also believe that the natural gas scooped up some bullish spillover form the oil price strength. However, another increase in the gas rig count, regardless of magnitude, could trigger a significant amount of selling that could eventually open the door to another round of fresh lows across the month of May. Any investment-type positions established within the June contract below the $2.50 mark seen earlier this week would represent a hold. But any additions to longs should await another price pullback to below the $2.50 level."

Gas buyers over the weekend across the PJM power grid may need to be on their toes as the contribution from renewable energy sources is expected to be low. WSI Corp. in its Friday morning forecast said, "An upper-level system and an area of low pressure off the East Coast will continue to bring mostly cloudy skies and showers across the Mid Atlantic today, but mostly sunny skies are expected across western PJM.”

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