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All Points Fall, But New Rally May Be in Store

As bearish weather, screen and storage signals had indicated the day before, prices fell at all points Thursday. Declines ranged from a little less than a Canadian dime for intra-Alberta numbers to as much as half a dollar at Cheyenne Hub. Most losses were at least 20 cents or greater.

But a majority of NGI sources look for the downturn to be short-lived after a clearly bullish storage report spurred a 12-cent gain in natural gas futures that was accompanied by new strength in Nymex's petroleum-based complex.

The Energy Information Administration reported a storage build of 37 Bcf for the week ending July 29, about 10 Bcf or so below consensus prior expectation. In addition, the revised EIA survey methodology (see futures story) raised total working gas inventories by what was considered an inconsequential 2 Bcf.

As a result of Thursday's cash drops combined with the screen rally, the Henry Hub premium to September futures, which had widened to about 40 cents Wednesday, tightened to only about 7 cents Thursday.

One justification for Thursday's softness was provided by a Northern Natural Gas spokesman, who said temperatures had peaked in the Omaha area just above 100 degrees Wednesday, but were nearly 25 degrees lower Thursday after a cold front moved in.

However, a bearish sign that had developed Wednesday -- Columbia Gulf saying it would not be allowing any nominations at Egan Hub Storage starting Friday (see Daily GPI, Aug. 4) -- got canceled Thursday as the pipeline said it would accept up to 200,000 Dth/d in Egan nominations Friday (see Transportation Notes).

Those favoring a Friday rebound noted that although some cooler weather had moved into northern market areas, the reduction in temperatures wasn't very substantial in the Northeast and that the region would be tending to get warmer again from Friday into the weekend. They also expected the next-day support provided by futures to largely offset the impact of a weekend drop in industrial demand.

A Northeast marketer observed that basis spreads from the Gulf Coast to the Northeast were still pretty strong even with prices coming off. The Northeast had cooled off a bit but remained "pretty warm," he said, and power generation demand stayed fairly strong for Friday. He believed that the bullish nature of the storage report and the subsequent boost it gave Nymex, which came too late to have much influence on Thursday's cash prices, will allow a moderate rally in cash Friday.

A Calgary-based producer thought there was a fair chance of a small cash rally Friday, noting that futures trading a little higher in after-hours Access activity, which indicated there was a little bit of market strength still around.

A Houston-based marketer who trades the Midwest said nobody wants to be looking for physical gas after 9:30 a.m. CCT on Thursday's in case of an adverse storage number. Thus he also expects a modest rally in cash Friday because the Nymex didn't go higher until nearly all cash trading had been completed Thursday. In addition, he noted that although a cold front had cooled off much of the Midwest, "there's some warmer air following the front."

There was a naysayer in a Gulf Coast producer who said "I hope not" when asked about the possibility of a new cash rally Friday. "Prices have been getting out of hand, and they don't reflect the true value of gas," he went on. He based his case for further softening (albeit mild) on the screen coming off 10-15 cents from its highs near the end of futures trading, saying that was one reason to think that the screen's usual next-day influence on cash may not be very potent this time. Also, he said, "we'll be trading for a weekend, and northern market areas are cooling off."

In a final comment, he noted that as a producer he should favor another rally, "but I don't want to see any more harm to my customers" from high prices.

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