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Weather, Power, Demand Converge to Send Cash Lower; Futures Ease

Gas for delivery Thursday shed a dime in Wednesday's trading as a trifecta of moderating weather, lower power prices, and lower demand gave buyers little incentive to pursue incremental volumes.

Overall, the market was 13 cents lower at $2.39, with the Northeast retreating 41 cents and most other regions giving up a couple of pennies to a nickel.

Futures continued their downward trek ahead of the Energy Information Administration’s inventory report, which most analysts expect to show a small draw.

At the close, May was lower by 3.5 cents to $2.605 and June had fallen 3.7 cents to $2.654. May crude oil vaulted $2.49 to $50.09/bbl.

Mid-Atlantic and Appalachian spot prices fell as peak power prices declined and demand eased. Intercontinental Exchange reported that on-peak power at the ISO New England's Massachusetts Hub fell $7.42 to $35.58, and at the PJM West Hub Thursday on-peak power retreated $3.80 to $32.98.

Gas for delivery to New York City on Transco Zone 6 fell 41 cents to $2.36, and packages on Tetco M-3 changed hands 44 cents lower at $1.96.

Marcellus gas also weakened. Deliveries to Millennium fell 11 cents to $1.77, and gas on Transco Leidy was quoted 15 cents down at $1.72. Gas on Tennessee Zone 4 Marcellus shed 15 cents to $1.61, and gas on Dominion South changed hands at $1.70, down 22 cents.

Next-day gas prices across the region got little help from demand. According to industry consultant Genscape Inc., demand fell at both the Southeast Mid-Atlantic and Appalachian zones. From March 31 to April 1 demand declined from 14.03 Bcf/d to 13.19 Bcf/d for the Southeast Mid-Atlantic and from 13.76 Bcf/d to 12.22 Bcf/d for Appalachia.

Maximum temperatures were seen well above normal at major population centers. AccuWeather.com forecast that Chicago's high of 66 Wednesday would slide to 64 Thursday and ease to 50 by Friday. The seasonal high in Chicago is 53. Philadelphia's 54 maximum Wednesday was anticipated to climb to 65 Thursday and hit 70 on Friday. The normal early-April high in Philadelphia is 59.

In the Midwest, next-day prices also slumped on falling demand. Gas on Alliance shed 5 cents to $2.59, and deliveries to the Chicago Citygates were seen 7 cents lower at $2.59. On Consumers, next-day gas came in at $2.81, down a penny, and on Michcon Thurday parcels changed hands at $2.75, down 4 cents.

Genscape reported that demand in the Midwest skidded more than 2 Bcf/d from 11.19 Bcf/d to 9.01 Bcf/d from March 31 to April 1.

Buyers across the broad MISO footprint also had to factor in high renewables generation. "A southerly wind will support strong wind generation [Wednesday] with output as high as 10 GW,” said WSI Corp. “After a brief decline, a brisk northwest breeze is expected during the end of the week, which may support output in the 6-8 GW range. Wind generation may remain elevated during the weekend."

Longer term, MDA Weather Services in its six- to 10-day outlook said the forecast has “cooled along the northern tier from the Midwest to the Northeast in this period as the region finds itself on the north side of the jet stream and influenced by low-level high pressure in Canada. This, however, will only act to keep temperatures closer to seasonal norms in the Midwest, while the Northeast is below normal. The West will likewise see temperatures at to slightly below normal levels in this period, with the coolest conditions through about mid-period before temperatures moderate.

"The South-Central and Southeast U.S. will be warm throughout the period. Cooler risks remain focused in the western U.S. and along the northern tier based on model guidance. Much-belows may span as far south as northern New England."

Risk management firm DEVO Capital currently is standing aside the market, with no positions suggested for trading accounts, end-users or producers. "Natural gas is currently testing support levels established in February of this year," said President Mike DeVooght.

Estimates of the week's storage injection report center around a small withdrawal, and if estimates are correct, the year-on-five-year deficit will be further reduced. Last year 71 Bcf was withdrawn and the five year average is for a 22 Bcf decline.

Ritterbusch and Associates is looking for a 7 Bcf build, but First Enercast Financial calculates a 12 Bcf pull. Others also see a small withdrawal.

Tim Evans of Citi Futures Perspective sensed there were "expectations” that the storage report for the week ended March 27 “will revert to a more typical seasonal withdrawal, with early estimates bracketing our own model's 11-Bcf net withdrawal forecast. While less than the 22 Bcf five-year average decline for the date, the draw may be enough to hold sellers at bay for now. However, the temperature outlook still suggests above-average storage injections going forward. We continue to view natural gas as arguably undervalued, but lacking a fundamental trigger that would set an upward correction in motion."

A Reuters poll of 25 traders and analysts revealed an average 10 Bcf withdrawal with a range of minus-17 Bcf to plus-7 Bcf.

Market technicians see the natural gas market on something of a precipice. "The greater risk for natgas is still very much to the downside. However it did not break down yet," said United Energy’s Walter Zimmermann in a note to clients. Analysts “peg critical support to a cluster of three candidates for support at $2.581, $2.537 and $2.476. Serious downside is on tap should the $2.476 be decisively broken. Bulls still need a decisive break out above $3.035 to have any case."

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