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Cash Continues to Backtrack from Last Week's Rise

Cash Continues to Backtrack from Last Week's Rise

Despite the sharp change in market direction the past two trading days, with prices falling as much as 12 cents at some points Monday, there was no consensus on whether this is the beginning of a lengthy slide or just a breather before another surge upward.

The only areas to escape falling cash prices yesterday were the Rockies and California, which were bolstered by a scheduled maintenance at the Opal hub, where 100 MMBtu/d was removed from the market until Thursday. Malin traded flat to Friday and San Juan (non-Bondad) registered a gain to about $2.20.

As expected, cooler weather in the Midwest, Northeast and Gulf Coast was cited as the main reason for the price drops. The Northeast lost the most, as Transco Zone 6 fell to the mid $2.80s after reaching $3.15 last Thursday. Traders said activity was light and Canadian activity was virtually non-existent thanks to yesterday's Civic Holiday. Michigan citygate markets were extremely hard to find, causing one Houston marketer to speculate that the long Canadian holiday spurred buyers to pick up Dawn supplies Friday for four days rather than three.

One Midwest trader doesn't see the general price decline continuing. "I don't see cash going away. During the last run-up, we saw over 50 cents tacked on to prices. That's a pretty good move. Now, it's cooled down, but I don't know anybody who is turning off their air conditioners because the temperature fell from 100 to 94 degrees. I think it is preparing for another run. There has to be some settling down before that can happen, and this small cool-down provided the perfect opportunity." Supporting his theory is the six- to 10-day forecast, which calls for much of the Northeast and Midwest to return to above-normal temperatures next week.

A Gulf Coast trader, however, is forecasting more declines to come. He quoted Henry Hub prices trading in the low $2.50s. "I don't think the strength the market gathered early last week can be sustained," he said. "With relaxing generation loads, there is nothing pushing prices up. I think it could go down another 20 cents before finding any reason to go up 5 cents."

One bearish source said he is looking for temperatures to moderate soon, and without the electric generation demand, more gas will be put into the ground. "The only wild card," he said, "remains hurricanes, but there is nothing on the horizon yet." August is the first peak month for the hurricane season, according to the National Oceanic and Atmospheric Administration. While expectations for an above-normal amount of powerful storms have gone unfulfilled so far, they are not far from traders' thoughts. "I'm looking for weak prices until mid-August, but I have a gut feeling that a hurricane or two will cause some spikes after that," one Gulf Coast source said.

While bears think hurricanes are needed to lift prices, bulls are pointing to this week's American Gas Association storage report as a rallying point. "This Wednesday is the key," one trader said. "Its no secret how hot its been this past week, and a lot of gas was used to keep buildings cool." He estimated this week's report would resemble last week's 41 Bcf injection and have a similarly bullish impact on the market.

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