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Most Points Fall Again, But Bullish Signs Seen

Prices continued to shrink at a small majority of points Thursday, but the fact that losses were limited to a nickel or less in most cases, combined with a return of flat to modestly higher quotes at quite a few locations, indicated that the cash market wasn't quite as weak as had been indicated a day earlier.

A cooling trend Friday in the Midwest did not contradict the fact that overall weather fundamentals remain bearish for cash prices. However, Thursday's physical market did have moderate support from a 5.6-cent rebound Wednesday by June futures.

Most of the points that were flat to nearly a dime higher were in the Gulf Coast, Midcontinent and Rockies. Northeast citygates tended to lead losses ranging from 2-3 cents to a little more than 20 cents.

In addition to the effect of mounting pipeline restrictions due to moderate weather forecasts in their market areas, such as Tennessee's OFO Action Alert that will become effective Saturday (see Transportation Notes), Friday's cash prices are virtually guaranteed to be softer after June futures plunged 36.7 cents Thursday (see related story). The Energy Information Administration's report of a 103 Bcf storage injection during the week ending May 15 handily exceeded previous consensus estimates in the low to mid 90s Bcf.

The weather picture remains overwhelmingly bearish for gas prices. Heat levels in the South have yet to build up to any significant air conditioning load for gas-fired peaking generation, while northern market area conditions ranging from cool to warm tend to mean little of either cooling or heating demand. The Rockies are warming again from a brief midweek chill; conditions remain moderate in most of the rest of the West, while only moderate heat is being seen at this time in the desert Southwest.

Kern River said linepack had returned to normal systemwide Thursday after being low in three of four segments Wednesday. And PG&E allowed Thursday's high-inventory OFO to expire Friday.

There's no question that prices will be down at most or all points Friday, said a Gulf Coast producer. The combination of mild weather forecasts along with the extra loss of industrial load during a holiday weekend were already negative influences, he said, and Thursday's big screen drop virtually guarantees further softness in the cash market. "We don't have the weather anywhere," he said. There was very little buying by the Chicago-area utilities Thursday, who say weekend weather "will be very nice," he reported.

The producer said he was seeing "very slow" June bidweek action so far. The utilities are "buying a little" but not very anxious to complete June business, he said. It's a question of how many people will try to get done ahead of the holiday weekend, he said.

It's "looking grim" for Rockies producers, said a member of that group. "My company will be fine" because of its overall low production costs, he said, but others just can't get along with current sub-$3 prices for very long. It's cool but not cold in the Rockies right now, he continued, and he's afraid that no added price strength is coming along for quite a while.

The current Rockies price weakness is occurring when the Rockies Express Pipeline (REX) "isn't even full at this point," the producer said. REX was full when it came on-line through Missouri last year, he said, but is falling short of total throughput volumes now. The REX delays for completing the eastern leg through Ohio may be costing Rockies producers as much as 50 cents/Mcf on their sales prices, he said.

He said there is a fair chance of 1-cent prices surfacing again in the Rockies as they did last year, and even in other market areas, due to the lack of demand and mounting storage inventories. "Wait till the end of the year," when a reviving economy and drilling cuts are expected to be having more effect, seems to be every producer's hope at this point, he said.

After an Overage Alert day that lasted 11 days, which he wasn't sure whether it was a record duration or not, Florida Gas Transmission (FGT) has actually been selling gas in the last day or so, said a Florida utility buyer, who said his company bought one package from FGT. Florida is still on the warm side, but rains will be keeping area demand low into the weekend, he said.

Basis is looking strong for May, the buyer said, adding that he is looking for gains of about 25 cents or so for fixed-price indexes.

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