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New England Weakness Drops NatGas Cash; Futures Stumble To 1-Month Low

Physical natural gas for delivery Wednesday retreated in Tuesday's trading as firming prices in the Midcontinent, Midwest, and Rockies were unable to offset larger scale weakness in New England prompted in large part by rescheduled maintenance.

Work on Algonquin Pipeline has been delayed 2 days and led to double digit declines, and the NGI National Spot Gas Average fell 3 cents to $2.79. In spite of options expiration on the May futures contract the range on the May contract was held to just 6 cents and at the close May had eased 2.3 cents to $3.043 and June had added 5-tenths of a cent to $3.165, the lowest close by a spot contract in over a month. June crude oil gained 33 cents to $49.56/bbl.

Next-day gas in New England plunged as work on an Algonquin compressor station got delayed 2 days. "In a notice published Monday morning, Algonquin announced the rescheduling of the maintenance at Stony Point that will reduce a 1,800 MMcf compressor to 800 MMcf," said industry consultant Genscape in a report. "Originally scheduled for Tuesday and Thursday, this reduction will now take place Thursday and Saturday. The reason for the reschedule was not specified, but now this outage will coincide with Burrillville [compressor station] restrictions.

"On Thursday and Friday, Burrillville will be reduced to 620 MMcf, down from a seasonal operating capacity of 931 MMcf. Seven-day flows through Burrillville have averaged 652 MMcf/d, with a single day maximum of 692 MMcf," Genscape said.

Gas at the Algonquin Citygate tumbled 54 cents to $2.72 and deliveries to Iroquois, Waddington were quoted 29 cents lower at $2.83. Gas on Tenn Zone 6 200L shed 41 cents to $2.83.

Declines at Marcellus points couldn't match the New England losses. Parcels on Dominion South fell a penny to $2.48 and gas on Tennessee Zone 4 Marcellus gave up 2 cents to $2.43. Deliveries to Transco Leidy changed hands 1 cents lower at $2.48.

Other market points showed changes of a few pennies. Gas at the Chicago Citygate added 3 cents to $2.82 and gas at the Henry Hub fetched $2.96, lower by 2 cents. Gas on Northern Natural Demarcation rose 2 cents to $2.79 and gas at Opal was down a cent at $2.63. Packages at the PG&E Citygate were quoted 3 cents lower at $3.21.

Near term weather conditions around the country mostly fluctuated near seasonal norms. AccuWeather.com forecast the Tuesday high in Philadelphia of 55 would rise to 67 Wednesday and reach 79 by Thursday, 11 degrees above normal. Chicago's 75 high of Tuesday was seen easing to 74 Wednesday and falling to 57 by Thursday, 6 degrees below normal.

May futures opened unchanged Tuesday morning at $3.06 as traders saw the market requiring new input if the near-term trend lower was to continue.

Analysts see the fundamentals clearly favoring the bearish camp. "The lack of significant support off of the temperature factor appears discounted for now, and the market may require some bearish supply side guidance from Thursday's storage report if this recent down move is to resume," said Jim Ritterbusch of Ritterbusch and Associates in a Tuesday morning report to clients.

"We still feel that the money managers will be proceeding into a 'sell rallies' trading mode given the past week's chart damage. And with the supply surplus set to expand further on Thursday, the market will likely require a supply disruption in order to revive buying interest, especially with some nuclear facilities coming back online.

"We have suggested downward adjustment in stop protection to the $3.25 level close only on any short June positions established recently above the $3.30 mark. Our downside target remains valid to the $3.05 level. We will continue to monitor the front May-June spread as it establishes a new wide contango ahead of tomorrow's expiration in association with a renewed weakening in physical pricing."

Weather models overnight were balanced, with little net change in forecast heat or cooling loads. WSI Corp. in its Tuesday morning six- to 10-day outlook said the "period forecast is a bit cooler over the East early in the period, but the central and eastern U.S. are warmer during the back half. The changes offset each other, so [gas-weighted heating degree days] are only down 0.8 to 29.9 for the period, which are nine below average. [Population-weighted cooling degree days] are down 1.4 to 12.3."

In the near term, however, things are much more active, with gas buyers for power generation across the MISO footprint having their hands full navigating severe weather patterns along with healthy renewable generation. WSI expects an active and stormy pattern and is calling the severe weather a "major" risk.

"A storm system will start to develop [Tuesday] and traverse the power pool through Thursday," it said. "This system will lead to rounds of rain and thunderstorms, which may be severe across the Mississippi Valley late tonight and again Wednesday. A southerly flow ahead of the system will support above average warmth and elevated humidity with readings in the 60s, 70s to mid 80s. However, there will be enough cold air with readings in the 30s and 40s on the north side of the storm to support some wet snow across northern Minnesota into the Upper Peninsula of Michigan.

"A south to north-northwest wind associated with the storm system will boost wind generation today through Thursday. Output is forecast to occasionally peak 8-10 GW. After a decline, a second system will boost wind generation during the weekend."

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