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Upward Momentum Ends; June Drifts Lower

June futures made an initial attempt to rally Tuesday, but market technicians observed that the market failed to breach important resistance areas and prices settled slightly lower. At the close of trading June had eased 0.1 cent to $4.345 and July had shed 0.2 cent to $4.391. July crude oil surged $1.89 to $99.59/bbl.

"Monday's rally was a continuation of the market's response to the deal that was reached on Friday for Cheniere [Energy Partners LLC] to export natural gas, and Tuesday's trading was a realization that this market is well supplied and the export deal won't kick in until 2015 and beyond," said Eric Bentley, CEO of VKNG Energy LLC of New York.

"That put a bit of a bid in the market, but the fact that the market settled right on $4.34, an area of intense short-covering Monday, and couldn't work higher was not a particularly positive sign. I think the market will test $4.25 by expiration on Thursday," he said.

"It made two efforts at $4.40 with highs of the day at $4.397 and $4.393 but couldn't break through the granddaddy of resistance in the $4.40 to $4.50 area."

NGI's Daily Gas Price Index reported Monday that Cheniere Energy Partners LP unit Sabine Pass Liquefaction LLC had received approval from the U.S. Department of Energy (DOE) to liquefy and export U.S. natural gas from the Sabine Pass LNG terminal to any country that has or develops import capacity (see Daily GPI, May 23).

The order expands upon the authorization that Sabine Pass Liquefaction received in September authorizing exports to all current and future Free Trade Agreement countries (see Daily GPI, Sept. 13, 2010). It concludes one of the key regulatory requirements necessary for the Sabine Pass liquefaction expansion project to proceed, Cheniere said.

Analysts were looking for a continuation of Monday's gains, but the two stabs at $4.40 were about as far as the market could go. "We feel that additional price gains will be forthcoming as this week proceeds with July futures working their way higher toward the $4.60 area," said Jim Ritterbusch of Ritterbusch and Associates. He conceded to the "difficulty in sustaining price rallies at this time of the year as hot temps are usually not sustainable in most regions. As a result, a further advance toward the $4.60 area could easily be followed by a price reversal back toward last week's lows."

Forecasters see the Midwest warming in the near term. "Generally strong consensus is emerging this morning on a stronger surge of heat into the Midwest for the six- to 10[-day forecast] with an extension into the East Coast, too," said Matt Rogers, president of Commodity Weather Group in Bethesda, MD. "With the ridge axis almost always centered over the Midwest, the East Coast cities would occasionally run the risk of cooler onshore flow issues, especially in the Northeast. Despite that potential for variability, the warmth should outweigh brief cooling there. For the first time, the Euro ensembles are showing possible [storm] development in the Gulf in the 11-15. Given [the] time of year, this would probably be a weak system (East Texas drought relief?)."

Market bulls got an early wake-up call that the Atlantic hurricane season begins June 1 as the National Hurricane Center has been monitoring a system 650 miles east-southeast of Bermuda. It reported earlier that the system had a 20% chance of developing into a subtropical cyclone during the next 48 hours, but in its 9:10 a.m. EDT report it downgraded the system since upper-level winds were not favorable. "There is a low chance...near 0%...of this system becoming a subtropical cyclone during the next 48 hours," it said.

Although crude oil and natural gas prices have disconnected for some time, Goldman Sachs raised its 12-month estimate of Brent crude oil to $130/bbl from $107/bbl, and analysts at Morgan Stanley lifted their forecasts for Brent by 20% to average $120/bbl this year and by 24% to $130/bbl in 2012, according to reports. Rises in oil prices can make drilling for natural gas more attractive in areas prone to high levels of condensate and natural gas liquids production such as some shale plays.

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