Finally responding to the 40.2-cent drop in front-month natural gas futures values from last Thursday’s high of $4.983, cash point averages across the board came off significantly on Tuesday for Wednesday delivery.

After mixed trading on Monday, a vast majority of points uniformly dropped Tuesday by 10 to 15 cents with a few spots in different regions topping 20 cents. Cash averages in the Rockies and the West saw the largest reversal on Tuesday after most points on Monday dropped a nickel to 15 cents.

Traders and market watchers attributed the recent up-and-down trading trend to the market tracking the screen. After knocking on the $5 door late last week, July gas futures closed Monday’s regular session at $4.646, down 11.1 cents. Further erosion was evident Tuesday as the front-month contract closed at $4.581, down another 6.5 cents (see related story).

One western trader said that with a lack of other large persuading factors, cash is taking its cue from the futures arena. “Everything dropped pretty well on Tuesday,” he told NGI. “At this point, I think we’re really following the futures screen. There just isn’t that much else going on.”

After many weeks of coolness, the trader noted that the West looks like it will be “heating up soon” and joining the rest of the country with summer-like temperatures. However, he’s not so sure the increased air conditioning load is going to bump gas demand for power generation. “Yes, it looks like we’re going to start getting pretty hot, but the problem is we have so much hydro on hand, it’s really hard to say what is going to be able to goose gas demand. Between now and the end of July, we have so much hydro in the system, I believe gas prices are going to stabilize. Sure, prices might go up a bit, but they won’t be jacked up too high.”

A lot of hydro indeed. Earlier this month the Northwest River Forecast Center said it expects water supply at the Dalles Dam to be at the seventh highest level in the past 50 years, and separately in Idaho the state regulatory commission just approved a 4.8% rate decrease for Idaho Power Co. tied to excess hydroelectric power, which has displaced a significant amount of higher-cost gas-fired and other thermal generation (see Daily GPI, June 3).

Gas demand for power generation in the Northwest is expected to “run at a minimum” this summer, according to a report from Barclays Capital’s commodities research unit. “This could mean that on many days gas-fired power plants in the region remain idle around the clock,” Barclays said, speculating that surplus hydro availability is expected to be at its greatest level in June.

Natural gas price bulls might have reason to celebrate if early estimates for Thursday morning’s natural gas storage report for the week ending June 10 come to fruition. Citi Futures Perspective analyst Tim Evans said his early estimate is for a 71 Bcf build in inventories, which would be smaller than both last year’s date-adjusted build of 89 Bcf and the five-year average addition of 87 Bcf.

Stephen Smith of Stephen Smith Energy Associates on Tuesday upwardly revised his weekend estimate of a 65 Bcf build to a 71 Bcf build “based on an update of various data.”

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