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Northeast Heat Lifts NatGas Cash, But Futures Drift Lower

Physical natural gas posted strong gains in Monday trading as a heat wave lifted quotes up and down the Atlantic Seaboard. Only three points followed by NGI fell into the loss column, and stout, double-digit gains were common.

The NGI National Spot Gas Average added 11 cents to $2.83. Futures trading was far less inspired as traders adopt a "show-me" attitude to the impact of what amounts to a short-term heat wave on the longer supply-demand balance.

At the close, July had eased 1.5 cents to $3.024, and August was down 1.7 cents to $3.054. July crude oil rose 25 cents to $46.08/bbl.

Northeast prices surged as temperatures were forecast as much as 20 degrees above seasonal norms. AccuWeather.com predicted the Monday high in Boston of 96 would only ease to 92 Tuesday before giving way to 73 on Wednesday, 2 degrees below normal. New York City's high of 93 Monday was predicted to hit 92 Tuesday and then drop to 80 by Wednesday, 1 degree above normal. Philadelphia's 93 high on Monday was expected to rise to 94 Tuesday and fall to 81 on Wednesday, 1 degree below normal.

Gas at the Algonquin Citygate jumped 52 cents to $3.28, and deliveries to Iroquois Waddington added 14 cents to $3.09. Gas on Tennessee Zone 6 200 L was quoted at $3.27, up 42 cents.

Packages on Tetco M-3 rose 8 cents to $2.26, and gas headed for New York City on Transco Zone 6 surged 38 cents to $3.09.

Next-day power prices were highly variable. Intercontinental Exchange reported on-peak Tuesday power at the ISO New England's Massachusetts Hub rose $5.31 to $55.50/MWh, yet on-peak power at the PJM West terminal shed $8.16 to $45.43/MWh.

Elsewhere, prices advanced but not at the furious pace of the Northeast. Gas at the Chicago Citygates changed hands 9 cents higher at $2.93, and deliveries to the Henry Hub came in a dime higher at $3.08. Deliveries to El Paso Permian rose 5 cents to $2.56, and gas on Northern Natural Demarcation added 9 cents to $2.79.

Gas at Opal was quoted at $2.60, up 9 cents, and deliveries to SoCal Citygate averaged a stout $3.03, up 14 cents.

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"Temperatures will climb to between 90 and 100 F for a two- to four-day stretch in the northeastern United States during the first part of the week, prior to a cooldown," said AccuWeather.com meteorologists. "High-temperature records dating back as far as the 1970s and 1980s will be challenged during the swelter, and the Northeast heat will be a brief eastward extension of a long-duration heat wave for much of the central U.S.

"For many areas of the Mid-Atlantic and southern New England, this will be the second heat wave of the year, following three days in a row of 90-degree temperatures during the middle of May. In much of this region, this heat wave will span through Tuesday. In northern and eastern New England, the number of places with temperatures reaching or exceeding 90 will be limited. Even so, for many parts of Maine and New Hampshire, this will be the longest stretch of 90-degree weather of the year so far.”

Said the Accuweather.com team, "No matter what the official designation, the surge in heat and humidity will hit like a sledgehammer, when combined with intense June sunshine and relative to most days in the past several weeks. While humidity levels will not be as high as some heat waves of the past during July and August, they will be higher than what many people are used to.”

Longer term, weather forecasters see a warming trend as well.

"Forecast changes were in the hotter direction versus Friday's report from the Southwest to the Central Plains; and while the forecast is near and marginally above normal with temperatures from the Midwest to the East, these are areas of lower confidence versus elsewhere given the various solutions among guidance," said MDA Weather Services in a Monday morning report to clients.

"The European model allows for a stronger blocking feature in the northwest Atlantic to aid in deepening a trough and less warmth into the Eastern Half; however, both the Global Forecast System and Canadian models allow more warmth to spill into these areas."

“Natural gas settled slightly higher after trading in a tight choppy range for the entire week,” said Mike DeVooght, president of DEVO Capital. “It seemed that traders were taking a break as they digested the prior week's sharp break. Moderate temperatures continue to keep new buyers on the sidelines. The weekly storage numbers were considered negative this past week because of a larger than anticipated injection.

“On a trading basis, we still feel there is a good chance of testing the $2.80-$2.90 level on the spot market in the next few weeks. We will continue to hold our current positions.”

DeVooght advised trading accounts to hold a short July futures at $3.25 (rolled from May), yet end users are cautioned to stand aside. Producers and physical market longs were advised to hold the remainder to an August 2016 July 2017 $2.70 put strip and sell a $3.50 call against it. Alternatively he advised a $2.75 put strip with the sale of a $3.75 call paying 7 cents.

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