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Natural Gas Cash, Futures Traders Navigating Lackluster Conditions As May Posts 2-Week Lows

Physical natural gas prices for Wednesday delivery as well as futures moved little in Tuesday's trading. Strength in New England and Appalachia proved barely adequate to give spot prices a positive luster and offset broad but minimal changes in Midwest market zones, as well as the Midcontinent, Rockies and California.

The NGI National Spot Gas Average rose a penny to $2.92. Futures traded down to two-week lows but were able to settle above important support zones at $3.13. At the close May had retreated 1.8 cents to $3.145 and June had lost 1.5 cents to $3.236. May crude oil lost 24 cents to $52.41/bbl.

In the Northeast, next-day prices were mixed as forecast energy demand showed minimal change going forward. ISO New England predicted that Tuesday's peak power load of 14,200 MW would remain virtually unchanged Wednesday at 14,240 MW and ease to 14,080 MW Friday. The PJM Interconnection calculated that Tuesday's peak load of 29,977 MW would inch higher to 30,081 MW Wednesday and reach 30,745 MW Thursday. The New York ISO forecast Tuesday maximum load of 16,742 MW would slide to 16,715 MW Wednesday and fall further Thursday to 16,936 MW.

Gas at the Algonquin Citygate jumped 32 cents to $3.44 but deliveries to Iroquois, Waddington shed 4 cents to $3.26. Gas on Tenn Zone 6 200L rose 11 cents to $3.46.

Major market centers had a hard time mustering any kind of price response to a rather benign temperature environment.

Gas on Dominion South rose 6 cents to $2.72 and but packages at the Chicago Citygate fell 3 cents to $2.94. Deliveries to the Henry Hub fetched $3.06, unchanged from Monday. Gas on Northern Natural Demarcation eased a penny to $2.87 and deliveries to Opal were quoted at $2.75, also off a penny. Gas at the PG&E Citygate changed hands a penny higher at $3.36.

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Forecaster AccuWeather.com predicted the high in New York City Tuesday of 66 degrees would fall to 56 Wednesday but jump back to 65 by Thursday, 2 degrees above normal. Chicago's pleasant high Tuesday of 75 was seen dropping to 65 by Wednesday and 64 Thursday, 4 degrees greater than its seasonal norm. Dallas' Tuesday peak of 81 was predicted to rise to 83 Wednesday before climbing to 85 by Thursday, 7 degrees above normal.

Just when the bears thought they might get some relief from the large number of nuclear plants offline, more nuclear capacity was taken offline. "Nuke outage season remains well in effect as the restoration of a large chunk of capacity this past week was offset by new units going offline," said industry consultant Genscape in a Tuesday report. "Roughly 9,730 MW of nameplate capacity has been restored in the past five days. However, in that same time frame, more than 12,300 MW of nameplate capacity has been taken offline. Total nameplate capacity currently on outage now stands at 23,255 MW. Conceptual gas burn replacement for the entirety of that capacity would be close to 3.2 Bcf/d."

Longer term weather forecasts took their toll on futures trading, and the May contract opened 2 cents lower. In a Tuesday morning report to clients WSI Corp. said, "The latest 11-15 day period forecast is a little warmer than yesterday's forecast over the East but a bit cooler across the Rockies and central U.S. CONUS [continental United States] GWHDDs [gas-weighted heating degree days] are down 1.8 for days 11-14 and are forecast to be 20 for the whole period, which are 21.7 below average. CONUS PWCDDs [population-weighted cooling degree days] are 14.4.

"Forecast confidence is a little lower than average as there is model spread, inherent uncertainty and plenty of moving parts with the hemispheric pattern throughout the two medium-range periods."

Plenty of moving parts perhaps but not enough to offset forecast large declines in heating loads for the week. The National Weather Service predicts New England will see just 78 heating degree days (HDDs) or a whopping 50 below normal, and the Mid-Atlantic will experience 55 HDDs or 52 below normal. The greater Midwest from Ohio to Wisconsin is expected to endure 55 HDDs as well or 55 less than its seasonal tally.

Analysts don't see the market reacting to lower production and forecasts of a warm summer just yet. "Although we view some of this week's selloff as related to bearish spillover from the petroleum futures, we are maintaining a trading theme of recent weeks in which generally mild temperature trends are reducing both HDD and CDD accumulation in the process of maintaining weekly storage injections at around average levels," said Jim Ritterbusch of Ritterbusch and Associates in a Tuesday morning report to clients. "This would help to maintain a supply surplus of around 260-270 Bcf, an overage of approximately 15%. While not a substantial supply cushion, such a stock will be able to dampen any occasional price spikes that might emanate from unexpected pipeline disruptions, additional nuke outages, etc.

"And while some of the longer term weather forecasts across the summer period are beginning to issue warmer than normal expectations, deviations from usual don't appear severe or broad-based. All in all, this still feels like a market that can draft on down to about the $3.05 level per June futures when stretching an outlook into early next month."

Market technicians are seeing a weakening outlook and are focused on a higher price threshold. "Starting to look very heavy in technical terms," said Brian LaRose, an analyst with United ICAP, in closing comments Monday. "However, in price terms bears still have not done enough damage to make a case for a seasonal top being in place. First challenge for the bears will be $3.132.

"Take out last Wednesday's low and there is immediate room down to $3.060-3.034-3.032 next. Fail to take out $3.132, expect further congestion near the highs."

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