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Northeast, Appalachia Lead Broad NatGas Cash Advance, Futures Traders Wary of 11-Cent Rise

Both natural gas cash and futures marched higher Tuesday, with traders citing ongoing heat as the culprit and the market starting to get back into full swing following the holiday.

Gains were widespread, with double digit advances common. Only three points followed by NGI sustained losses, and the NGI National Spot Gas Average added 9 cents to $2.80.

Futures opened below $3 but by the final bell had added nearly 12 cents. August rose 11.8 cents to $3.047 and September was higher by 11.4 cents to $3.038. August crude oil gained 64 cents to $45.04/bbl.

Next-day prices across the East and Midwest posted strong gains as energy demand was forecast to increase through the middle of the week. The PJM Interconnection forecast that peak power load Tuesday of 49,881 MW would rise to 51,330 MW Wednesday and reach 55,363 MW by Thursday. ISO New England calculated that peak load Tuesday of 20,550 MW would reach 21,750 MW Wednesday before easing slightly to 19,730 MW Thursday. The New York ISO expected peak load Tuesday of 26,495 MW to climb to 26,852 MW Wednesday and then ebb slightly to 26,043 MW Thursday.

Gas at the Algonquin Citygate jumped 31 cents to $2.72 and deliveries to Iroquois Waddington were quoted 11 cents higher at $2.97. Parcels on Tennessee Zone 6 200 L gained 27 cents to $2.69.

Gas on Tetco M-3 Delivery changed hands 15 cents higher at $2.34 and packages bound for New York City on Transco Zone 6 rose 14 cents to $3.07.

Most major trading points west and south gained ground as well. Gas at the Chicago Citygate rose 12 cents to $2.88 and deliveries to the Henry Hub were quoted 8 cents higher at $2.99. Gas on El Paso Permian shed 3 cents to $2.51, but deliveries to Panhandle Eastern rose 4 cents to $2.59.

SoCal Citygate changed hands a penny lower at $3.20 as forecast power loads in California were expected to ease slightly. CAISO forecast peak load Tuesday of 40,931 would slide to 39,921 MW Wednesday.

Other West Coast points, however, firmed. Gas at the PG&E Citygate rose 11 cents to $3.29 and gas priced at the SoCal Border Average gained 3 cents to $2.88. Deliveries to El Paso S Mainline fetched $3.19, up 13 cents.

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"People are returning and getting back into the swing of things and there is a little bit of a weather story with the heat coming. I think that is what you are seeing," said a West Coast trader based in Denver.

"The six- to 10-day forecast is a little warmer and that is what is driving the market."

August natural gas opened 5 cents higher Tuesday morning at $2.98 as weather models slid forecast heat in a more easterly direction and storage surplus contraction is back in play. Overnight oil markets opened weak.

Futures traders didn't see the day's surge above $3 as that noteworthy. "We ran up 13 cents off the lows, so that's not a bad gig if you think about it," a New York floor trader told NGI. "We sometimes hold it for a couple of days and then the next thing you know we break pretty strongly through the $3 range. We'll have to see if the market can stay above $3 for a few days and maintain it."

Weather models overnight migrated near-term heat more into the East. "Forecast changes were mixed, leaning hotter in the Midwest at mid-period and in the East late while the South-Central is cooler," said MDA Weather Services in its morning six- to 10-day report to clients. MDA calculations show the period averages aboves for most of the West and into the Midwest, with perhaps some additional hotter risk being focused around mid-period in the Midwest when ridging is strongest overhead.

"The East likewise favors a round of aboves coming in late in the period; although, seasonal readings are seen here from early to mid-period. Texas is generally near normal overall, while seasonal readings return to parts of the Southwest in the second half tied to monsoon activity." Risks to the forecast include temperatures [peaking] additionally hotter in the Midwest in the mid-period and Mid-Atlantic late. Risks are mixed in the Southwest, where monsoonal moisture lowers confidence, MDA said.

The forecast warmth has analysts going long and looking for further storage surplus contraction. "Although the above normal views are not showing extreme deviation from usual tendencies, warming trends are broad based across a large portion of the U.S., a prospect that appears capable of boosting" cooling degree day "accumulation significantly," said Jim Ritterbusch of Ritterbusch and Associates in a morning report to clients.

"As a result, the dynamic of surplus contraction appears to be back on with resumption expected on Thursday where we expect a supply build some 10-12 Bcf smaller than the five year average increase of about 72 Bcf. While our technical indicators are providing a mixed bag, lack of significant chart resistance until about the $3.12 area per nearby futures could help to facilitate a return to a $3 price handle toward the front of the gas curve.

"We shifted off of a neutral and into a bullish near term trading stance following last Wednesday's sharp price drop into our suggested buy zone of $2.87-2.92 per nearby gas futures. We are advising stop protection below the $2.80 level on a close only basis. Our upside price target exists to the $3.12 level with any sustainable hot weather patterns capable of an eventual advance into the $3.22-3.25 zone. But given the magnitude of early July price selloff, we will be reviewing our stance closely following Thursday's EIA [Energy Information Administration] release."

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