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Nearly All Cash Markets Shine, But Marcellus Swoons

Nearly all points scored double-digit gains, but Tennessee reported limited capacity available out of the Marcellus Basin and prices there plunged. Overall, physical prices for weekend and Monday delivery gained about 17 cents with Rockies and Midcontinent prices showing strong gains and Northeast and Southern California price rises somewhat more subdued.

Futures consolidated Thursday's meteoric gains and at the close of trading July had fallen 2.8 cents to $2.467 and August had slid 2.7 cents to $2.514. July crude oil added 12 cents to $84.03/bbl.

The day's biggest loser was Tennessee Gas Pipeline Zone 4 Marcellus, which posted a nearly 90-cent loss as Tennessee reported no additional capacity available to move gas through its Station 315 point. A bottleneck has been known to form here as abundant Marcellus Shale gas supplies clog the system. "That gas can't move east and often just gets stranded," said a Tennessee spokesman. Gas was reported to have changed hands for as little as a quarter with the average being about 69 cents.

Other eastern points followed the futures lead. Tetco M-3 and Transco Zone 6 New York both racked up gains of about 20 cents, but Northeast points could only manage more modest advances. Quotes on Algonquin were up by close to 15 cents, and deliveries on Tennessee Zone 6 200 L added nearly a dime. Weekend through Monday gas into Iroquois Waddington rose a couple of pennies.

Rockies points posted strong gains. Quotes at the Opal Plant tailgate added about 20 cents, and deliveries to the Cheyenne Hub and CIG were about 20 cents higher as well.

A Midcontinent trader was confounded by the day's advance. "This is due to a storage report? There is still plenty of gas available," said an Oklahoma trader.

Nonetheless Midcontinent points made some of the day's strongest advances. Deliveries to NGPL Midcontinent Pool and NGPL TEX OK rose 20 cents or more, and gas on Oklahoma Gas Transmission, Panhandle and ANR SW was up almost as much.

California points rose as well. PG&E Citygate added close to a quarter, and SoCal Citygate was up more than a dime. SoCal Border points were about 12 cents higher.

Futures analysts saw Thursday's rally as largely technically driven, but conceded that market momentum favors the bulls at least for the moment. "We still feel that much of [Thursday's] rally was technically motivated as underlying fundamentals shifted little amidst the modest 4-5 Bcf miss below average street expectations for last week's storage number," said Jim Ritterbusch of Ritterbusch and Associates.

"Nonetheless, a consensus interpretation that much of the downsized injection was spurred by a lift in power demand largely explained [Thursday's] gains from a fundamental perspective. In other words, the coal-to-gas substitution effect appeared to be brought back to life via [Thursday's] smaller-than-expected draw, a development that appeared to spark a frenzy of short covering when 2 week highs were violated. Expectations for additional production declines were probably a minor ingredient behind yesterday's rally."

Ritterbusch sees the market vulnerable to further gains. "All in all, we are forced to concede to yesterday's abrupt shift in price momentum back to the upside. Amidst this environment, even a minor shift in the temperature forecasts toward the warm side could easily force a further advance toward our projected upside price parameter of $2.62 per July futures within next week's trade."

Even with Thursday's titanic 31-cent gain, market technicians aren't willing to call a change in market trend. "Best we can label Thursday's price action is constructive," said Brian LaRose, an analyst with United-ICAP. "To confirm $2.618 marked the end of an ABC correction down from $2.759, $2.672-2.698 must be exceeded. Clear this narrow band of resistance and our minimum implied upside target becomes 3.025 (a equals c)." LaRose also noted that intraday RSI [relative strength indicator] readings suggest a pattern of "congestion, even a pull-back early Friday."

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