Physical natural gas for Wednesday delivery bounded higher in Tuesday's trading as outsized weather-driven gains in California provided sufficient lift for double-digit additions across all but a few eastern market points.

The NGI National Spot Gas Average surged 22 cents to $1.96, but gains were directly impacted by the distance to California and the West Coast. California, on average, gained more than 40 cents, and Rocky Mountain points added just over 30 cents. The Northeast, by contrast, gained just over a dime. Futures traders honed in on the first major heat episode of the season and by the close had sent July futures up 11.9 cents to $2.288 and the August contract higher by 10.2 cents to $2.383. July crude oil eased 23 cents to $49.10/bbl.

Weather forecasts called for triple-digit readings in northern California well into the week. forecast that Tuesday's high of 100 in Sacramento would dip to 97 Wednesday and reach 98 on Thursday, well above the 84 degree seasonal norm. By the end of the week temperatures were expected to push the mercury to 102. Phoenix was forecast to see its normal triple-digit readings, with Tuesday's 101 rising to 102 Wednesday and 106 Thursday, not far from the seasonal norm of 100. By Saturday, however, Phoenix is expected to see a high of 114.

Gas for delivery Wednesday at Malin gained 42 cents to $2.07, and deliveries to the PG&E Citygate vaulted 49 cents to $2.27. Gas at the SoCal Citygate changed hands 43 cents higher at $2.28, and gas priced at the SoCal Border Avg. Average was 41 cents higher at $2.10. Deliveries on El Paso S. Mainline/N. Baja gained a stout 41 cents to $2.09.

With June bidweek on its final approach path last Friday leading to Monday's conclusion, traders were finding a mixed, but mostly lower bag of quotes. Gas at the Algonquin Citygate was averaging $2.11, down a stout 41 cents from May bidweek levels, yet gas at Opal was seen at $1.80, up a penny. Deliveries to the Henry Hub were averaging $1.96, or 3 cents lower than May and packages at the Chicago Citygate changed hands at $1.94, 10 cents under May figures. meteorologists said, "Warmth will build and evolve into a heat wave across a significant part of the western United States this week. The warmth will likely yield the hottest weather of the year so far into the weekend, especially interior locations. Record highs will likely be challenged across a widespread area.

"The impending heat will be a drastic change from what the Northwest has recently experienced. "[Temperatures], the last one to two weeks have been near- to below-normal," meteorologist Jim Andrews said.

"Seattle has not recorded a high above the 60s since May 13. Especially in the interior Northwest, we will be looking at record-challenging highs with 90s in the lower valleys and 80s in the higher valleys. Yakima, WA; Medford, OR; and Boise, ID, will even be near the century mark."

The heat is not expected to be limited to the Pacific Northwest. Analysts on top of the precarious California power and gas market expect California demand to be higher as triple-digit temperatures are forecast. "Prior to the long holiday weekend, the forecast was showing some heat moving into the West this week. As we gather ourselves for a new month, the forecast seems to be holding true as Sacramento is looking at triple digits most of the week, while Burbank will be getting warmer as we get deeper into the week," said EnergyGPS, a Portland, OR-based risk management and power consulting firm in a Tuesday morning report to clients.

"On the supply side, in-state wind has shifted down and will continue to stay low while imports from other parts of the West will be hard to come by as their respective regions are warming up as well. This will push up on the overall implied heat rates and initiate more natural gas-fired generators to turn on to help balance the grid."

Should demand increase substantially, the jury is out as to whether producers could mobilize quickly enough to put rigs back to drilling. Rig activity is near an all time low, but shows signs of stabilizing. Friday Baker Hughes Inc. (BHI) reported a net change of zero in the United States and the departure of one rig from Canadian activity (see Daily GPI, May 27).

Mike DeVooght, president of DEVO Capital Management, isn't ready to enter the market yet, but he feels it is primed for a realignment as funds and managed accounts jettison the short side.

"[T]he nearby contracts settled lower on the week, while the deferreds were up. We have seen this pattern over the past few months. The spot and cash market has been weak, while the deferreds have been steadily working higher, [and] part of the strength can be attributed to the buying in anticipation of a hot summer and partly by short-covering.

"The funds, who have been carrying a substantial short position for quite some time, seem to be throwing in the towel. It continues to be difficult to make a bullish fundamental case for natural gas, but we feel the gas market is ripe for a good old-fashioned short-covering rally. What will spark the rally is difficult to say. It could be a protracted heat wave or possibly the funds decide to get out of their short positions and get long. On a trading basis, we will continue to stand aside and await future developments," he said in a weekend note to clients.

Tom Saal, vice president at FCStone Latin America LLC, in his work with Market Profile sees rangebound pricing for now. He expects the market to test last week's value area at $2.175 to $2.135.