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Large California Gains Pace Natural Gas Market Higher; Futures Add 9 Cents

Next-day natural gas at nearly all points for Tuesday delivery jumped as traders cited expectations of warm weather, pipeline maintenance, and precautionary buying as putting a strong bullish tone to the market.

Gains of 10 cents to 20 cents were common, and only a handful of points failed to make it to positive territory. Gains were the highest in California where advances of 25 cents or more were common. Overall, NGI’s National Spot Gas Average gained 21 cents to $2.64. Futures traders were looking at longer-term weather reports calling for heat and humidity and reacted accordingly. At the close, August was up 9.4 cents to $2.864, and September had advanced 8.7 cents to $2.867. August crude oil fell 54 cents to $52.20/bbl.

CAISO loads, which had been languishing just above 30,000 MW last week, were forecast much higher, and West Coast power prices firmed as well giving a strong foundation to make incremental gas purchases. CAISO forecast that peak load Monday would reach 33,319 MW, but by Tuesday peak load was expected to jump to 36,350 MW.

Next-day gas at Malin vaulted 26 cents to $2.84, and deliveries to PG&E Citygate added 16 cents to $3.22. Packages at the SoCal Citygate gained 38 cents to $3.13, and gas at the SoCal Border changed hands 33 cents higher at $2.95. Gas on El Paso S Mainline rose 30 cents to $2.96.

Intercontinental Exchange reported that peak power Tuesday at COB (California Oregon Border) gained $3.49 to $33.53/MWh, and deliveries to Mid C came in $2.13 higher at $30.48/MWh.

Prices firmed in the East as well, as traders cited more conservative buying, pipeline maintenance and weather forecasts. "The intraday prices have been much higher than the timely [day-ahead]. I think people are a little nervous about that," said a Northeast marketer. "Last week, people were paying $1.50 for timely gas, and now it's $3.00 intraday. It looks like people are getting a little more conservative and buying more gas. There is also work going on.

"There's also been quite a bit of work on Tennessee and Algonquin and the weather forecasts are calling for warm temperatures," he said. I think it's a little hotter at Dawn, and the basis into the Ontario market has strengthened over the last week."

Other markets firmed as well. Next-day deliveries on Columbia TCO added 12 cents to $2.80, and gas at Iroquois Waddington gained 11 cents to $3.01. Gas on Iroquois Zone 2 was seen 13 cents higher at $3.01.

Midwest prices posted some healthy double-digit gains as heat and humidity were forecast to inundate the area. Gas on Alliance added 15 cents to $2.92, and deliveries to the Chicago Citygate gained 16 cents to $2.90. Parcels on Consumers changed hands 13 cents higher at $2.97, and gas on Michcon came in 13 cents higher at $2.95. At Demarcation, Tuesday gas quoted at $2.88, up 17 cents.

AccuWeather.com forecast that Chicago's Monday high of 87 would ease to 80 Tuesday, but adjusted for humidity Tuesday's high was expected to feel like 89. By Wednesday highs were seen dropping to 74. The normal high in Chicago is 85. Detroit's Monday high of 79 was predicted to climb to 84 Tuesday and drop to 75 Wednesday. The seasonal high in Detroit is 82.

Futures traders decided to bide their time before doing any more selling. "The market is up on the weather forecast, and no one wants to be short," said a New York floor trader. "I am not buying into that, and I think others aren't either. I am also not selling either. I'm going to see how high the market goes before it fails. I really don't have an opinion here. I'm just going to let it keep going."

The floor trader's reluctance to buy into current weather forecasts is understandable as forecasters admit that the trend is to warmer temperatures in the near term, but their models are giving a lot of mixed results and don't paint a clear picture. "Over the weekend, we saw a good deal of sloshing, with notoriously fickle models like the GFS operational jumping around to all sorts of solutions even as early as the six-10 day range," said Matt Rogers, president of Commodity Weather Group.

"From what best we can assess, the South -- from Texas to the Southeast -- sees more heat potential over the next two weeks with more chances for 100-degree weather in Dallas (early next week after tomorrow's hit and then again in 11-15 day). The East Coast is not looking as hot this week as originally forecast (demand losses), but then trends hotter again this weekend into early next week, but we focus on warmer lows vs. highs given rain risks. The 11-15 day is also a mixed mess, but after a hiatus, we favor heat returning to the Southwest/California."

Market technicians see everything in place to indicate a trend to higher prices except the price action itself. "Let's recap," said Brian LaRose, a market technician at United ICAP, in closing comments Friday. "$2.641-2.616 held. The weekly candlestick can best be described as a doji hammer bottom. The long term RSI [Relative Strength Indicator] reading turned up precisely where it needed to. And the short-term technicals have swung to a bullish bias. From a technical perspective, bulls look like they are firing on all cylinders. But we do not have price confirmation; need a break above $2.890 to signal the bulls really are in control."

Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm, continues to recommend trading accounts, end-users and producers stand aside the market.

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