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Cash Market Climbs to Start the Week As Futures Plummet

The cash market elected to follow the Friday futures advance and added on average about 8 cents Monday for Tuesday delivery. Midwest points rose on some anticipation of upcoming AC load, but Midcontinent gains were thought to be a function of Friday's double-digit futures advance. At the close of futures trading Monday June had plunged 13.3 cents to $2.609 and July had fallen 13.3 cents to $2.689. June crude oil gained $1.09 to $92.57/bbl.

Marketers in the Midwest and Great Lakes saw prices up sharply from last week. "The prices [Michcon, Consolidated] are up about 8 cents from last week. It looks like people are anticipating some AC load," said a Michigan marketer. "We had a couple of days in the high 80s from over the weekend, although it is now cooled off some, but there is definitely some AC load starting now. There's some fear that higher electrical demand will drive the market higher."

He added that for the moment temperatures had subsided, "but yesterday [Sunday] was brutal. It could be that customers factored that in and didn't want to get caught short. Tomorrow's [Tuesday's] prices ought to be lower. We heard that a lot of people went into the month short and were expecting the market to continue to trend lower, and a lot of people are playing catch up now."

Quotes on Michcon and Consumers were both more than a nickel higher, while Chicago Citygate added 8 cents and gas on Alliance rose by a dime. Parcels to Northern Natural Ventura were up just under a nickel.

Forecaster Wunderground.com said the high in Chicago Monday and Tuesday would only reach 64, but by Wednesday the highs should be up to 72, its seasonal average.

The day's biggest gains were posted by Tennessee Gas Pipeline at its Zone 4 Marcellus point. The company reported restrictions effective Tuesday and ending Wednesday "due to nominations in excess of capacity." Quotes for next day delivery jumped nearly 70 cents.

Other eastern points were up by double digits as well. Tetco M-3 was higher by more than a dime and Transco Z6 into New York added almost 15 cents.

A Midcontinent marketer said the day's gains were "the market trying to follow the futures." He added that there were no loads and "everything is going into storage. It gets more difficult as you go forward, and although there may be some heat, you still have gas in storage that will have to come out. When it gets full, it becomes a problem."

Deliveries on Oklahoma Gas Transmission gained more than a nickel, and gas into NGPL Midcontinent Pool was up close to a dime. Panhandle and ANR SW were also about a dime higher.

Futures traders were thinking the day's decline was due to an early reaction to the Thursday storage report. "Usually on Monday there's an indication of what the number is going to be on Thursday," said a New York floor trader.

"Apparently traders thought it was a bearish number, so they kicked the bananas out of it. Out of nowhere this thing just collapsed. Under $2.59 there is no support until you get to $2.53, and the low was $2.589 and it shot right back up."

Tim Evans of Citi Futures Perspective on Friday predicted the week's storage report at an 88 Bcf build, below last year's 101 Bcf and a five-year average of 97 Bcf.

A top trader looking for a spot to initiate long speculative positions may have gotten his opportunity today.

"The fundamentals of this market have not changed significantly, but the psychology has. Time will tell if we are just seeing an unwinding of short natural gas and long everything else trades and short-covering of outright short trades or if we have really seen a trend change and a fundamental shift in the market. We suspect we are seeing a combination of the above influencing the market," said Colorado-based Devo Capital President Mike DeVooght.

"We do, however, believe the long-term fundamental picture is improving and will continue to do so. However, on a trade basis we feel we are going to bottom slowly rather than [go] up, up and away. Therefore, we will look for pullbacks to buy for speculation. For hedgers, we still believe buying floors stacked in October is the way to protect yourself in this market. If you were unable to buy the protection earlier, you might consider doing so now."

DeVooght currently advises trading accounts and end-users to stand aside, but producers and physical market longs should continue to hold on to an October $2.50 put position established earlier at a debit of 25-27 cents.

The hurricane season doesn't officially begin until June 1, but the National Hurricane Center (NHC) reported that at 5 p.m. EDT on Monday Tropical Storm Alberto was about 225 miles E of Jacksonville, FL, and holding winds of 40 mph. It was moving to the east and NHC projections had it moving to the northeast and not making landfall.

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