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Eastern Basis Markets Rattled; Cash, Futures Gain

The cash market overall gained on average about 3 cents Wednesday with Northeast points reporting stout gains, and increases at Midwest locations not far behind. The approval of a major pipeline project anticipated to expand deliveries into New York City by 4Q2013 ripped through the basis market and differentials narrowed considerably. Futures advanced and by the close June had advanced 3.0 cents to $2.737 and July had gained 2.0 cents to $2.796. July crude oil plunged below $90 and settled at $89.90, down $1.95/bbl.

"They came out with an approval late yesterday for the New York-New Jersey pipeline project that Spectra has been working on and a lot of traders just saw it [Wednesday] morning. The additional supply into New York would be there beginning November 2013," said an eastern marketer (see Daily GPI, May 23). "I think this caught a lot of people by surprise. There was thinking that it was not going to get approved. There are some small legal hurdles to clear."

The market took quick notice.

"The November 2013, March 2014 Transco Z6 strip is off about 15 cents from [Tuesday]. Algonquin also followed suit. The Z6 strip was $1.52 [over Henry] and it is trading at $1.36 [Wednesday]. The summers and front months [basis] are holding steady until the November 2013 term. June Algonquin is trading at 34 cents bid, 34.5 cents offered. Calendar 2013 Henry is $3.59 to $3.60," he said.

Next-day quotes at northeastern and eastern points jumped as next-day power prices rose. Algonquin Citygates was up close to a dime and deliveries to Iroquois Waddington gained a nickel. Tennessee Zone 6 200 L added nearly 15 cents.

Tetco M-3 and TransCo Z6 both were about a nickel higher.

IntercontinentalExchange reported that peak power for Thursday into Nepool and PJM both rose. Nepool Day Ahead LMP into the Massachusetts Hub rose $1.36 to $34.85/MWh and PJM Western Hub Day Ahead LMP added $1.83 to $43.00.

Points across the Midwest rose, with well-above normal temperatures forecast. AccuWeather.com said the high in Chicago Thursday would reach 88 degrees before easing to 80 on Friday. By Memorial Day on Monday highs were expected to be back up to 86. The normal high for Chicago this time of year is 72.

Quotes on Michcon were about 4 cents higher and Consumers gained over a nickel. Chicago Citygate and Alliance rose a couple of pennies apiece and Northern Natural Gas at Ventura was unchanged.

Midcontinent points were mostly higher. Deliveries to Panhandle Eastern added a nickel and gas on Oklahoma Gas Transmission was flat. NGPL Midcontinent Pool added a couple of cents, but ANR SW eased a penny.

Futures traders see the current advance running into difficulty. "We know there was a terrific amount of utility switching when natural gas was under $2, but I think we are approaching levels where coal will become attractive depending what area of the country you are in," said Steve Blair, analyst at Rafferty Technical Research.

"I think the market has a limit to the upside. There is major resistance between the $2.80s and mid $2.90s. I would be surprised if it got through that resistance, but there are always underlying factors such as hot weather and tropical storms," he said.

That technical resistance may get tested when the Energy Information Administration releases its weekly gas storage report at 10:30 a.m. EDT. Expectations are that the increase will fall well short of historical norms.

Industry consultant Bentek Energy and IAF Advisors of Houston both forecast a build of 74 Bcf, and United-ICAP is looking for an 80 Bcf increase. Last year 101 Bcf was injected and the five-year average stands at 97 Bcf.

Weather bulls should be pleased with near-term weather forecasts calling for a heat wave over the upcoming Memorial Day weekend.

"Building heat over the southern Plains is forecast to surge northeastward later this week. While the pattern is only likely to last several days, it will feature the highest actual temperatures...of the season so far," said AccuWeather.com meteorologist Alex Sosnowski. AccuWeather.com's "RealFeel" index, which incorporates a number of atmospheric conditions and how they feel to people, also is expected to reach its highest levels of the season.

"Early season warmth will evolve into a several-day stretch of 90-degree temperatures and high humidity with the core over the Ohio Valley states Friday into the Memorial Day weekend," he said. "RealFeel temperatures will top 100 degrees and could reach 105 degrees for a few hours each day from Kansas City and St. Louis, MO, to Cincinnati, Memphis, Nashville and Pittsburgh. Ninety-degree temperatures and near-100-degree RealFeel temperatures will also nose eastward into Philadelphia and Washington, DC."

Market technicians see the natural gas market as possibly in the process of forming a near-term peak but see a curious relationship with equities.

"The goal of any trader focused on one market is to lock in an edge whenever possible and lay off risk by spreading out of positions. Traders focused on multiple markets have another worry: correlation," said United-ICAP analyst Brian LaRose. "One never wants highly correlated positions. It is interesting to note that natgas bottomed only as the S&P peaked. The question now: do equities control the fate of natgas?"

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