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General Flatness Belied by Late Price Drops

General Flatness Belied by Late Price Drops

Enough gas got traded early Thursday at prices within a penny or two of flat that late weakness reported at many points failed to drag down averages from Wednesday. However, the late downturns were taken as a harbinger of continued softening today, especially with the market subject to the normal drop in weekend demand. The market felt kind of juiced up Wednesday but was losing its steam Thursday, according to a Southwest trader. He saw "some real softness" at the end in Permian Basin.

Sources again agreed that the screen was the major influence on the cash market. The early Nymex run-up to as high as $2.45 didn't have much impact, one said, but cash prices did tag along with the screen later when it headed south. But a western trader said he is currently seeing more reluctance on the bid side than the offer side, and he thinks that means fundamentals are starting to "inexorably assert their proper place in the market."

The reason cash is trading at such a discount to the July futures screen (at one point Thursday Henry Hub was 7 cents under the July print) is because a number of Northeast utilities are taking advantage of higher (above-index) swing prices by selling their baseload supplies, according to a Gulf Coast marketer. Since there isn't enough demand to soak up the extra gas being offered, supplies are getting backed up into the field, where they're not needed either, he said. Relatively mild weather and high nuclear power generation capacity is responsible for that, he concluded.

Chicago citygates were a notable exception to the late falling trend. A marketer reported Chicago quotes in the low $2.30s early but getting up to $2.37 at the end of the day, with most deals done at $2.35-36. Another trader said a couple of Gulf Coast pipes reflected the general trend for a while by starting near their highs and then going lower, but then got squeezed higher again late by tightening supplies. A Southeast trader said action is getting hard to come by on Florida Gas Transmission. He had no quotes to report for Zones 1 and 2 and only one in the high $2.30s-done early-for Zone 3. "It's just been real sleepy down there [in Florida market area]. You know when FP&L [Florida Power & Light] is selling any kind of gas imaginable into the market, there are few buyers to be found." He predicted a change next week, though, as temperatures in the high 80s and low 90s are expected to raise area market demand.

One source pointed out that with another couple of AGA storage reports like Wednesday's, the year-on-year surplus that had seemed so gigantic at the start of injection season "will be out of here." That's when the gas deliverability problem that was the subject of much discussion in recent months will start hitting home with more traders, he said. However, a producer wasn't so sure, saying there are still non-believers in the deliverability "problem."

Though insignificant to Gulf of Mexico production, the first two "events" of the fledgling 1999 Atlantic hurricane season have occurred. The National Hurricane Center Thursday reported two tropical waves-one several hundred miles south-southwest of the Cape Verde Islands near Africa's west coast and the other several hundred miles east of the northern coast of South America. However, neither system was expected to develop.

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