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Midwest NatGas Cash Outpaces Futures; July Adds 3 Cents To Notch Nine-Month High

Physical natural gas for Tuesday delivery posted solid double-digit gains in Monday's trading as no points followed by NGI traded in the loss column and most points added more than a dime. The NGI National Spot Gas Average rose 13 cents to $2.26 with the greatest gains seen in the East.

Futures prices posted the highest prompt-month readings since the advance began in March and settled at the highest point in nine months. At the close July was up 2.9 cents to $2.585 and August had advanced 2.8 cents to $2.652. July crude oil slumped 19 cents to $48.88/bbl.

Next-day gas at Midwest points averaged over a dime higher as weather forecasts called for above average temperatures seasoned with a healthy dose of humidity. Forecaster AccuWeather.com predicted nominal temperature increases for Chicago thru mid-week. Monday's high of 82 was expected to ease to 81 Tuesday before reaching 86 on Wednesday. When adjusted for humidity the Tuesday high of 81 jumps to 90 degrees and Wednesday's 86 rises to 93. The normal high in Chicago is 79 this time of year.

A similar pattern was noted for Boston. The Monday high of 73 degrees was predicted to climb to 77 Tuesday and 80 by Wednesday. When adjusted for humidity the Tuesday high becomes 79 and the Wednesday high is 85. The seasonal high in Boston is 76.

Gas on Alliance rose a stout 11 cents to $2.46 and deliveries to the Chicago Citygate changed hands a dime higher at $2.47. Gas on Michigan Consolidated rose 12 cents to $2.47 and deliveries to Consumers came in at $2.47 also, up 11 cents.

Some buyers were hesitant. "We didn't buy any gas today. Maybe because it's a Monday prices are higher and we'll see how the rest of the week shapes up," said a Michigan marketer.

In the East a healthy gain in next-day power prices made purchases for power generation more palatable. Intercontinental Exchange reported on-peak power at the ISO New England's Massachusetts Hub rose $6.12 to $24.22/MWh.

Gas at the Algonquin Citygate rose 52 cents to $2.15 and deliveries to Iroquois, Waddington added 78 cents to $2.46. Gas on Tenn Zone 6 200L jumped 55 cents to $2.14.

Major market hubs were higher as well. Gas on Dominion South rose a dime to $1.63, and gas at the Henry Hub added 11 cents to $2.52. Deliveries to Opal came in 8 cents higher and gas at the PG&E Citygate was quoted 9 cents higher at $2.45.

Futures traders are looking higher. "I think there is still room to the upside, and we have had lower builds than last year and the five-year averages," said a New York floor trader.

"Traders say the day's high is the next resistance point, but $2.635 [Monday's high] is nothing. Look for resistance at $2.65 and $2.75 above that," he said.

Analysts following the power market see this week as generating some of the highest loads of the season. With the uptick in gas prices, more coal generation is likely to be in the stack.

"As we head into the middle portion of the month, the overall power demand across the central portion of the country will be strong as daytime high temperatures move into the low/mid 90s in certain places and this thing called humidity is in play," said EnergyGPS in a Monday morning note to clients. "From a net load (power demand minus wind), the grid looks to be going from a flat average of 339 GW to over 365 GWa by Friday.

"[T]his type of demand increase coupled with the recent uptick in the natural gas price should initiate some coal-fired generation to turn on across the Midwest, SPP and Western PJM markets. Over the weekend, that is exactly what has occurred as MISO's generation stack saw coal output shift up while the natural gas fleet was in line with last year's levels. SPP had a similar trend over the weekend.

"Bottom line is it seems summer is here now that school is out in most parts of the country. The heat wave hitting the central corridor of the country should trigger coal to turn on while still burning plenty of gas. The western heat will be rolling in over the weekend and into next week. This will prompt all the generation in the Los Angeles Basin to be ready and able to turn on for at least three to four days."

Market technicians following candlesticks and retracement suspect the market still is on track for higher prices, but Friday's setback needs to be figured in. "Friday's candlestick was a bearish harami cross sell signal," said Walter Zimmermann, vice president at United ICAP, in a weekly note to clients. "To confirm a top in ratio retracement terms, natty now needs to break decisively below $2.460."

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