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Overall Gains Biggest in West; Storm Impact Light

The West rebounded strongly Monday from Friday's weakness that had been prompted by a weekend OFO and generally mild temperatures. Eastern markets were considerably more laid back after discovering that Tropical Storm Arlene was little more than a minor and short-lived annoyance in the supply picture.

Small losses and some flat points were mixed into overall eastern advances ranging from a couple of pennies to nearly a quarter. Most of the mild weakness was concentrated at East Texas and Midwest points. Meanwhile, with hotter weather beginning to reassert itself in the West and SoCalGas lifting a high-linepack OFO that had been in effect Saturday and Sunday, most western points were up between about a dime and 40 cents. Intra-Alberta quotes, which had been flat Friday amid general western softening, were something of a regional anomaly again by rising only about C5 cents.

Temperatures were on the rise again in the Northeast and much of the West, driving much of Monday's cash firmness. To a lesser degree they were increasing in the South in the wake of a little cool-off from Arlene's rains, which left behind plenty of humidity-boosting challenges for the region's air conditioners. Houston-area highs are projected to be in the mid 90s through the end of the current workweek.

Despite expectations that most if not all of the production affected by Arlene would be restored by Monday evening (see related story), the Minerals Management Service (MMS) office in New Orleans said that based on reports received from 16 companies by 11:30 a.m. CDT Monday, it tallied 362.23 MMcf/d in shut-ins, up from 353.92 MMcf/d at the same time Friday. Cumulative shut-ins since Friday had risen to 3.279 Bcf, equivalent to 0.083% of the Gulf of Mexico's normal annual production of about about 3.94 Tcf, MMS said.

One source believed the MMS outage figures were exaggerated from relying on shut-in reports that quickly became outdated as producers and pipelines aggressively pushed restoration efforts. As far as he could tell from news reports and talking with traders, just about all the Arlene-related shut-ins had been canceled by mid-afternoon Monday.

Arlene had been downgraded to a tropical depression Monday and lost its tropical characteristics while traversing Michigan on its way toward Lake Huron, the National Hurricane Center said. It said Monday's 5 p.m. EDT advisory would be its last on the first named storm of the season.

Storm watchers already had a new development to monitor, although any production threat seemed remote Monday. A cluster of showers and thunderstorms appeared in the central Caribbean Sea south of Haiti, according to The Weather Channel, and slow development of the disturbed area was possible over the next couple of days.

The industry can expect a lot of tropical storms all through the summer, commented one trader, but it will be in good shape if they don't get any worse than Arlene.

Chances of continued cash firmness Tuesday were considered strong based on the gradual increase of power generation load following some moderation in weather trends going into the weekend. An even bigger reason to expect rising cash quotes was a screen run-up of 32.8 cents Monday. July natural gas futures were pretty much "following the oil" again, said a marketer. A spike in heating oil futures led the overall petroleum futures charge as traders persisted in worrying about whether stockpiles will be sufficient during the upcoming winter heating season. Crude oil skyrocketed by more than $2 to $55.62/bbl.

A Gulf Coast producer perceived only light effect on the market from Arlene, saying virtually all of his company's production was back online Monday. Heat was "definitely" the big driver of Monday's cash gains, he said. He noted that in the market area, New York City temperatures would get up to around 90 degrees Monday and Tuesday before starting to retreat to the mid 70s by Thursday. He expects basis spreads and overall prices to be softening by then unless there are more big run-ups by the screen.

Noting that the Henry Hub-NYC spread Monday was close to 90 cents, the producer said that will probably shrink to half a dollar or so Thursday. He also looks for Transco Station 65 to lose its current premium of about a dime to the Hub, with both points returning to near parity.

"Not at all," a Houston-based marketer replied when asked whether he was seeing any lingering problems from tropical storm-related supply outages. The Midwest is staying fairly mild early this week in contrast to the Northeast heat, which is why Midwest citygates were weak relative to the general market Monday, he said. The marketer noted that July futures were continuing higher in Access activity late Monday afternoon, which usually points to higher cash prices the next day.

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