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Texas, Western Points Pace Advance; Futures Gain On Production Stats

Physical prices Monday were up a nickel on average as West Coast traders reported power shortfalls resulting from a delayed restart of nuclear generating capacity, and warm temperatures in Texas added to loads. Government figures reported a modest decline in natural gas production and futures romped higher. At the close of trading June had increased 9.9 cents to $2.285 on stout volume, and July gained 9.5 cents to $2.394. June crude oil eased 6 cents to $104.87/bbl.

California and western points led the day's advance as both San Onofre nuclear plants as well as Diablo Canyon 1 remained offline and Diablo Canyon 2 's continued attempts to increase output after difficulties late last week with marine organisms clogging intake pipes.

Quotes at SoCal Citygate added nearly 15 cents and SoCal Border was up about a dime. PG&E Citygate was seen 8 cents higher.

Prices firmed along pipelines bringing gas west from the Rockies. Malin added nearly a dime, and gas at Opal rose by 7 cents.

It was unclear when Diablo Canyon 2 would be back at full capacity. "I know Diablo Canyon 2 is ramping up," said a California trader.

Points in Texas also surged as traders pointed to an increase in loads. "Demand is picking up. It's getting hotter everywhere and it's certainly hotter down here," said a Houston-based marketer.

"It's warmer in Chicago, and a lot of areas are going to be burning more gas. Midland, TX was 104 last week. That's hot."

Gas on NGPL S TX was seen 7 cents higher and deliveries to Texas Eastern E TX rose close to a dime. Gas at Katy was approximately a dime higher and parcels at Waha were up 8 cents.

A report by the Energy Information Administration showing a slight decline in production was all it took for futures traders to cover shorts and lift prices.

"You saw a little short covering in the $2.22 to $2.23 area and it might trade to the $2.35 to $2.40 in the next day or two. I think there will be more short covering, and I think we could see another 15 cents higher before it heads back down," said a New York floor trader.

"There is resistance at $2.40, so I think it should stop right in that area."

The Energy Information Administration reported that natural gas production in the Lower 48 for February decreased to 72.32 Bcf/d from January's 72.74 Bcf/d or 0.6%. Other areas in the Lower 48 showing a decline were Wyoming, down 3.5% and Louisiana, off by 4.8%.

Although Monday's gains could be a game changer, Friday's positive settlement was not seen by analysts as having much staying power. "Market sentiment seems to be supported by the idea that the market has rebalanced to at least some degree by a perceived weakening in production and coal-to-gas switching by power utilities," said Tim Evans of Citi Futures Perspective.

"However, we would also note that the recent weather has been a key element of support with some record-high April temperatures set in some parts of the South. On April 25 there were readings as high as 111 [degrees] in Texas, within 2 degrees of the all-time April peak for the state.

"The key point is while the heatwave is supportive for now, putting a dent in the storage surplus, there may be not much of a shift in the background supply-demand balance as the bulls are hoping for."

Market rebalancing may come sooner than later. The April 27 report by Baker Hughes showed not only a reduction in the number of gas-directed rigs but also a decline in total rigs and horizontal rigs. Gas rigs fell by 18 to 613, 269 less than a year ago, and total U.S. rigs plunged 27 to 1,945, still above the 1,818 operating a year ago. Horizontal rigs fell 16 to 1,139, higher than the 1,023 active one year earlier.

Weather forecasters look for above-normal temperatures across the South. WSI Corp. of Andover, MA, in its six- to 10-day outlook predicts a broad ridge of above-normal temperatures centered over Tennessee. "The warmest anomalies are anticipated over the Tennessee Valley, where readings may average as 10 degrees above normal. More seasonable readings are forecast over the western third of the country," it said in its morning outlook.

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