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Rebalanced Market Requires Higher Prices, Analyst Says; July Called Up 2 Cents

July natural gas is set to open 2 cents higher Wednesday morning at $2.62 as traders eye a dominant high-pressure ridge expected to usher in warm temperatures. Overnight oil markets fell.

The market stumbled out of the gate Tuesday morning but by the close had managed to reach positive territory. "The natural gas market continued to ward off a technical correction by finding some incremental cooling demand on Tuesday as the nearby temperature forecast turned warmer than a day ago," said Tim Evans of Citi Futures Perspective in closing comments Tuesday.

"Nearby July natural gas futures tested the downside during the session but ended 1.9 cent (0.7%) higher on the day at $2.604/MMBtu, the second-highest closing price for the nearest futures contract since last September."

In a noon Tuesday update Natgasweather.com said, "No major changes in the latest weather data as a strong upper-level ridge of high pressure continues dominating large stretches of the U.S., which I expect will do so through the rest of the month. The ridge is currently anchored over the central and southern U.S., with widespread highs of 90s to 100s, including over all of Texas.

"[B]y late this week, the ridge will shift westward as a weather system drops into the Southeast, allowing record-breaking heat to set up over California where highs near 100 degrees F will impact major coastal cities. Until then, there's still a few notable weather systems and associated cool blasts impacting the northwestern and northeastern U.S. with highs of only upper 50s to lower 70s."

In the near term, cooling loads aren't forecast to be that demanding. The National Weather Service (NWS) said it expects about average cooling loads over major Midwest and East markets. For the week ended June 18, NWS predicts that New England will see 10 CDDs or three fewer than normal. The Mid-Atlantic should see 14 CDDs, or 12 fewer than its normal tally. The greater Midwest from Ohio to Wisconsin is expected to see 47 CDDs, or 13 more than normal, and the total U.S. is forecast at 60 CDDs or 11 more than normal.

Higher shale gas prices may be on the way. A prominent investment firm said a cyclical recovery in legacy shale drilling will be needed to balance the market beginning in 2017, pointing to natural gas prices of $3.00-3.50/MMBtu to stimulate exploration and production (E&P) activity (see Shale Daily, June 14).

"But a subsequent increase in production presents a downside risk to prices in 2018," said Damien Courvalin, global head of energy research for Goldman Sachs during a keynote presentation at the 21st Annual LDC Gas Forums Northeast conference, held last week in Boston.

In overnight Globex trading July crude oil dropped 56 cents to $47.93/bbl and July RBOB gasoline fell 4 cents to $1.4845/gal.

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