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

While most other points registered gains, PG&E citygate andMalin prices were held in check due to a high-inventory operationalflow order (OFO), issued yesterday morning (See transportationnotes). Malin traded flat to Monday and PG&E dropped into thelow $2.60s. Prices at the Southern California Border, however, roseinto the low $2.60s, virtually collapsing the basis between the twoCalifornia price points. Since the middle of May, PG&E hastraded 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 rowTuesday, as M3 and Transco Zone 6 each rebounded into the low$2.90s and high $2.80s respectively. One source said althoughprices rebounded yesterday, Friday’s and Monday’s weakness in theNortheast wreaked havoc on traders’ performance to start thismonth.

“Power generation has changed the rules of summer gas trading uphere,” one Northeast trader said. “We’re seeing winter-like movesin 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 ofNortheast traders are getting bit because of it.”

Yesterday’s late screen push was the main reason for strongprices at Sonat and Florida Zone 2, said one Southeast source. Hesaid Sonat traded in the low $2.60s, despite slackening powergeneration demand thanks to temperatures that “only” reached thelow 90s.

Aeco prices were on the rise Tuesday, reaching as high asC$/GJ3.10. One source attributed the increase to the burgeoningaccessibility to Aeco gas, because of the Northern Borderextension. “The strong price is an example of more optionsavailable for Aeco gas,” the trader said. “As a result, Aeco istracking much closer with the Nymex now than it had been before.”

The American Gas Association’s storage report was on theforefront of many traders’ minds yesterday, yet one source saidexpectations may be too high. “The report will definitely be low,but I think the bullishness may have already been expressed in theform of the screen strength. I wouldn’t be surprised if it haslittle to no affect on the market’s direction.”

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