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Exuberant NatGas Cash Tugs Futures Higher; August Adds 4 Cents

Physical natural gas for Tuesday delivery vaulted higher Monday as forecasts called for hefty gains in energy demand and next-day power prices rose.

Only two points followed by NGI fell into the loss column, and the NGI National Spot Gas Average jumped 12 cents to $2.83. Double digit gains were common.

Futures trading was far less inspired, with the spot August contract confined to a 7-cent range. At the close August had added 4.0 cents to $3.020 and September was higher by 3.6 cents to $3.007. August crude oil fell for the first time in six trading sessions and lost 52 cents to $46.02/bbl.

Temperatures in major markets were forecast to hover right above seasonal norms, but forecast short-term energy demand in the form of expected power loads rose all up and down the East Coast. The New York ISO estimated that peak Monday load of 26,003 MW would rise to 26,445 MW by Tuesday and reach 28,084 MW Wednesday. The PJM Interconnection predicted peak load Monday of 48,889 MW would rise to 50,504 MW Tuesday and climb even higher to 51,673 MW Wednesday. ISO New England forecast that peak power load of 20,620 MW Monday would ease slightly to 20,600 MW Tuesday before surging to 22,750 MW Wednesday.

Gas at the Algonquin Citygate jumped 43 cents to $2.89 and deliveries on Dominion South added 29 cents to $2.29. Packages on Tetco M-3 Delivery were quoted 30 cents higher at $2.37, and packages bound for New York City on Transco Zone 6 rose a stout 49 cents to $2.86.

Intercontinental Exchange reported that on-peak power at the ISO New England's Massachusetts Hub added $1.68 to $38.68/MWh and peak Tuesday power at the PJM West terminal added $4.41 to $36.10/MWh. Next-day peak power at the Indiana Hub added $3.81 to $36.31/MWh.

Temperatures were forecast at or above seasonal norms. Wunderground.com predicted Philadelphia's Monday high of 91 would ease to 89 Tuesday before working back up to 91 Wednesday, 4 degrees above normal. Chicago's 78 high Monday was expected to climb to 88 Tuesday before easing to 86 Wednesday, 2 degrees above normal.

Other market points posted solid gains as well. Deliveries to the Chicago Citygate rose 11 cents to $2.90, and gas at the Henry Hub changed hands 9 cents higher at $3.02. Gas on El Paso Permian came in at $2.65, up 10 cents and deliveries to Northern Natural Demarcation were quoted 8 cents higher at $2.79.

Gas at Opal was seen 10 cents higher at $2.68 and gas priced at the PG&E Citygate added 11 cents to $3.32.

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August natural gas opened 3 cents higher Monday morning at $3.01 as forecasts of moderate warmth proved capable of keeping the bulls' hopes alive.

Overnight weather models were somewhat mixed. MDA Weather Services in its morning six- to 10-day outlook for clients said, "Forecast changes were in the cooler direction from mid to late period in the Midwest and East, when high pressure allows for temperatures to fall to marginally below normal levels. Prior to this, however, aboves are seen early on in the southern Midwest and South, where the forecast carries small warmer leanings compared to Friday's expectations.

"Aboves are also found in California and most of the Interior West, with exceptions being a result of the seasonal monsoon in the Southwest and upper air variability in the Pacific Northwest. Overall confidence remains at moderate levels for the period."

Scott Shelton, analyst at ICAP Commodities, said, "The market still seems to trade like crude, where the data is quickly ignored and the market is dominated by price action and weather changes. Last week's gas storage report is a perfect example. I don't know what to think here ... the market is short from the CTAs, long from the humans, and the CTAs have more money!

"I think that most natural gas P&Ls have been decimated in the chop. Intuitively, I think natural gas may look cheap in the Winter, Summer and Cal 19, but the history tells me to think lower from here, as the market still favors strong shorts over strong longs."

Confirming Shelton's observations about last week's storage report [+57 Bcf], Mike DeVooght of DEVO Capital Management in a weekend report to clients said, "The weekly storage number came in slightly lower than anticipated, but failed to be a market mover. It would not be surprising to see the gas market make another run at the $3.10-$3.20 level, but considering the warmer than normal temperatures that are already forecasted for the rest of July, it is disappointing that we did not see a strong market this past week. On a trading basis, we will hold current positions and will stand aside for speculators."

DeVooght currently has in place a hedge program for producers consisting of buying puts and selling calls.

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