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NatGas Cash Flat, Futures Ease as Traders Await Heat

Spot prices for Wednesday delivery put in a broad advance across most market points in trading Tuesday. Gains of a nickel to a dime were common west of the Marcellus, and about half of eastern market points slipped into the loss column.

NGI’s National Spot Gas Average was flat at $2.64, and front-month natural gas futures gave up a portion of Monday's weather forecast-driven gains. At the close August was 2.4 cents lower at $2.840 and September had fallen 2.8 cents to $2.839. August crude oil added 84 cents to $53.04/bbl.

Major market hubs west of the Marcellus and Utica plays made gains. At the Chicago Citygate Wednesday deliveries rose 6 cents to $2.96, and gas at the Henry Hub fetched $2.95, 7 cents higher. Gas on El Paso Permian came in 9 cents higher at $2.90, and deliveries to PG&E Citygate added 3 cents to $3.25.

At eastern points, next-day gas pricing was more mixed as next-day power loads were forecast lower and on-peak prices were mixed. ISO New England predicted peak load Tuesday of 20,150 MW would ease to 20,100 MW Wednesday and drop to 17,800 MW by Thursday. The New York ISO forecast Tuesday's peak load of 25,480 MW would fall to 25,348 MW Wednesday before sliding to 23,616 MW Thursday.

Deliveries to the Algonquin Citygate fell 12 cents to $1.78, and gas on Iroquois Waddington rose 3 cents to $3.04. Gas on Tennessee Zone 6 200 L was flat at $1.98.

In the Mid-Atlantic gas on Tetco M-3 fell 11 cents to $1.30, and gas bound for New York City on Transco Zone 6 tumbled 86 cents to $1.94.

Next-day peak power prices were mixed. Intercontinental Exchange reported that on-peak power Wednesday at the ISO New England Massachusetts Hub rose $1.84 to $31.63/MWh and next-day peak power at the PJM West Hub fell $1.43 to $36.45/MWh.

In a study of regional gas balances and the impact of the REX (Rockies Express Pipeline) expansion, Wei Chien of Observ Commodities contends that "regional gas balances have turned REX East-to-West expansion to a much more bearish event than the market is expecting. Storage in the producing region will continue its fast injection in August and September. The conclusion is that REX's expansion will continue to suppress Henry Hub cash prices..."

For the moment the market certainly isn't expecting it. The NGI Weekly Spot Gas report for the week ended July 10 shows the Henry Hub at $2.72, ahead of all but one Texas point, and all South Louisiana, Midcontinent and Rocky Mountain locations.

Much of Monday's advance was predicated on warm temperatures and high humidity, but meteorologists at Genscape see that trend coming to a halt. "A series of load-killing storm systems are moving their way eastward across the Lower 48 this week, bringing an end to the brief run of above-normal temperatures that had run from coast-to-coast the past few days.

"Genscape's met[eorological] team forecast has population-weighted degree days falling below normal levels through the end of the week. It should be noted, however, that near-term forecasts have been showing a high degree of interday variability, particularly in the Northeast and Pacific Northwest regions, which may be contributing to the heightened trading activity at price hubs there [Monday]."

Opinions vary on the strength and breadth of forecast heat. "The market buys the initial change in forecast for above normal temperatures and it waits a day or two to see if that weather demand shows up," said Tom Saal, vice president at FC Stone Latin America LLC in Miami.

"The [futures] market isn't quite holding so we will see what tomorrow's forecast brings. The market isn't breaking out and I don't see any bottom pattern. The market isn't going any lower and that was a pretty big storage number last week [91 Bcf]. The heat is for south of the Mason-Dixon line and it's not super heat, but it is heat. That's enough to get the market heading towards $3, but it would be better if the heat were farther north.

Analysts see a definite storage impact next week. "The price advance of the past few sessions has been driven almost entirely by a shift in the short-term temperature views toward warmer than normal trends that are now extending into the final week of this month," said Jim Ritterbusch of Ritterbusch and Associates in Tuesday morning comments to clients. "Overnight updates are favoring some warmer patterns than generally suggested yesterday. Furthermore, coverage extends broadly across most of the nation. As a result, Thursday's storage injection that is likely to exceed five-year averages by almost 25 Bcf will likely be followed by a couple of normal to slightly below normal increases, perhaps down into the low 60s.

"We feel that a supply increase on Thursday of around our number [94 Bcf] has been fully priced and that a bearish surprise capable of forcing a return back to around yesterday's lows ($2.79) may require a triple-digit supply hike that is certainly not off of the table. Any such surprises could be easily facilitated by weaker electric generation demand than expected and/or some holiday-inspired slippage in industrial demand that could also boost storage to stronger than expected levels."

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