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Bullish Screen Defeats Bearish Weather to Push Cash Higher

Bullish Screen Defeats Bearish Weather to Push Cash Higher

The cash market switched gears Tuesday, as gains of 3 to 11 cents at most points reversed a two-day trend of general weakness. A strengthening futures screen replaced the slackening power generation demand as the main market driver, one trader said, and the result was increasing gas prices despite moderating temperatures throughout the nation.

While most other points registered gains, PG&E citygate and Malin prices were held in check due to a high-inventory operational flow order (OFO), issued yesterday morning (See transportation notes). Malin traded flat to Monday and PG&E dropped into the low $2.60s. Prices at the Southern California Border, however, rose into the low $2.60s, virtually collapsing the basis between the two California price points. Since the middle of May, PG&E has traded at more than a 15 cent premium to the Border prices.

"This is usually a Saturday-Sunday type thing," one trader said, but for this to happen for Wednesday flow "surprised everyone."

Northeast prices avoided a slide for the third day in a row Tuesday, as M3 and Transco Zone 6 each rebounded into the low $2.90s and high $2.80s respectively. One source said although prices rebounded yesterday, Friday's and Monday's weakness in the Northeast wreaked havoc on traders' performance to start this month.

"Power generation has changed the rules of summer gas trading up here," one Northeast trader said. "We're seeing winter-like moves in August, and power generation demand is behind the whole thing. Many people locked in month-long contracts during bidweek, expecting the prices to keep rising. That didn't happen and lots of Northeast traders are getting bit because of it."

Yesterday's late screen push was the main reason for strong prices at Sonat and Florida Zone 2, said one Southeast source. He said Sonat traded in the low $2.60s, despite slackening power generation demand thanks to temperatures that "only" reached the low 90s.

Aeco prices were on the rise Tuesday, reaching as high as C$/GJ3.10. One source attributed the increase to the burgeoning accessibility to Aeco gas, because of the Northern Border extension. "The strong price is an example of more options available for Aeco gas," the trader said. "As a result, Aeco is tracking much closer with the Nymex now than it had been before."

The American Gas Association's storage report was on the forefront of many traders' minds yesterday, yet one source said expectations may be too high. "The report will definitely be low, but I think the bullishness may have already been expressed in the form of the screen strength. I wouldn't be surprised if it has little to no affect on the market's direction."

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