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Physical Market Sports Wide-Ranging Gains, But Futures Inch Higher

Physical gas for delivery Thursday made it three straight days of gains in Wednesday's trading, with the largest advances at Mid-Atlantic and New England locations. Appalachia also firmed, as did prices in the Gulf, and overall the market was 18 cents higher. Healthy gains in next-day power prices, along with higher loads, also contributed to support next-day gas prices. At the close of futures trading, July had advanced 1.8 cents to $4.553 and August was higher by 1.3 cents to $4.569. August crude oil rose 47 cents to $106.50/bbl.

Next-day gas prices rose at New England points and the Mid-Atlantic as higher next-day power and revised load forecasts offered a firm footing for making gas purchases for incremental power generation. IntercontinentalExchange reported that next-day peak power at the New England ISO's (NE-ISO) Massachusetts Hub rose by $4.54 to $52.48/MWh, and peak Thursday power delivered to the PJM West terminal added $2.73 to $53.50/MWh.

Load forecasts were also revised higher. Peak Wednesday load had been forecast by NE-ISO at 19,180 MW, but Wednesday's forecast raised peak load to 20,700 MW, with 20,500 MW for Thursday.

Temperatures along the East Coast were predicted to remain above normal through Thursday. Forecaster Wunderground.com predicted that Boston's 87-degree high on Wednesday would ease to 81 Thursday before dropping to 79 Friday. The seasonal high is 79. New York City's 82 high was seen rising to 89 Thursday and then falling to 80 on Friday. The normal late June high is 82. Philadelphians had to endure a 93 high on Wednesday with a heat index of 94, with a decrease to 88 Thursday and near seasonal highs of 84 on Friday.

The National Weather Service in New York said "a slow moving frontal system across northern New England and upstate New York” would approach the area Wednesday night into Thursday. “Weak high pressure will build in from Friday into the weekend. The high will then shift to the south on Monday...beginning a warming trend for next week. A cold front will approach on Wednesday."

Thursday gas into New York City on Transco Zone 6 rose 33 cents to $4.08, and gas at Tetco M-3 added 47 cents to $3.87.

In New England, deliveries to Algonquin Citygates rose by 44 cents to $4.23, and packages at Iroquois Waddington gained 6 cents to $4.80. Gas on Tennessee Zone 6 200 L rose by 22 cents to $4.19.

Appalachia prices were solidly in the black. Gas on Columbia TCO rose 4 cents to $4.46, and parcels at Dominion South changed hands 33 cents higher at $3.51.

Gulf producers also saw quotes advance. Gas on Tennessee 500 L gained 7 cents to $4.55, and Tetco E LA rose 4 cents to $4.52. At the Henry Hub, Thursday deliveries were seen higher by 7 cents to $4.57, and gas on Transco Zone 3 also added 8 cents to $4.56. Next-day gas on ANR SE changed hands at $4.52, 6 cents higher.

Traders will be looking for the 10th weekly storage injection in a row, exceeding the five-year norm, when the Energy Information Administration releases inventory figures at 10:30 a.m. EDT Thursday. That would handily exceed last year's 94 Bcf build and a five-year average 81 Bcf injection. United ICAP calculates an increase of 107 Bcf, and IAF Advisors in Houston is looking for an injection of 109 Bcf. A Reuters poll of 22 analysts and traders showed a range of 88 Bcf to 112 Bcf, with an average 102 Bcf.

On Tuesday, July futures jumped 9 cents, but observers thought there was more at work than met the eye. Tim Evans of Citi Futures Perspective noted that options expired Wednesday "with the underlying futures contract to expire on Thursday, and so there may well have been an element of book-squaring behind the price recovery."

Evans said current estimates of Thursday's storage injection in the vicinity of 100 Bcf "would clearly be bearish relative to the 82 Bcf five-year average for the date. However, given our model's lower 93 Bcf estimate, we also see some risk of a smaller injection that would constitute a bullish surprise," he said.

Going forward, Evans calculates sub-100 Bcf injections through mid-July. For the week of June 27 he predicts a fill of 96 Bcf, followed by builds of 77 Bcf and 87 Bcf. By July 11, the year-on-five-year deficit is thinned to 785 Bcf from its current 851 Bcf, he said.

A lower deficit notwithstanding, Evans admitted that "this may not be enough to prevent the occasional rally or even a more significant advance on the basis that progress in reducing the deficit is still not enough, although even the declining deficit should still mean that the upside potential is gradually being reduced."

Evans is short the market. He recommended holding a short August futures position established at $4.62 on June 19 with a protective stop at $4.67 to reduce exposure on the trade.

WeatherBELL Analytics in its Wednesday 20-day forecast showed cooler than normal temperatures migrating south through the nation's mid-section through day 10. Meteorologist Joe Bastardi sees "a new cool shot down the Plains next week." He called it an "overall back-and-forth pattern...biased warmer than average West of the Rockies and east of the Appalachians. The upcoming eastern shot of hot [weather] should bring 95 degree-plus to [Washington, DC] for a couple of days and it may hit 90 degrees in [New York City]. The Ensembles are falling short at Chicago."

WeatherBELL expects cooling requirements out to day 15 nationally, in line with seasonal averages; 152.2 cooling degree days (CDD) are predicted, which would be well short of last year's 181.4 CDD but right in line with a 30-year average of 153.1.

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