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Screen, Tropical Action Spur Major Price Rally

Cash prices saw a major resurgence Monday that owed more to screen strength Friday and Monday and new tropical disturbance activity than it did to weather-related fundamentals. Northeast citygates were pushing above $10 again amid overall gains ranging from about a quarter to nearly 80 cents.

Florida Gas Transmission's Zone 3 numbers also averaged more than $10 as the pipeline extended a lengthy Overage Alert Day notice for its market area, tightening the tolerance for negative daily imbalances slightly to 20% Monday.

The market wasn't totally devoid of weather support, as temperatures approaching 100 degrees or more were anticipated Tuesday from Texas and the southern Midcontinent through the desert Southwest. But with the East Coast and Midwest having cooled a bit, sources said power generation load in those key market areas had slacked off.

But with Friday's screen rise of nearly 20 cents advancing by another 45.3 cents Monday, Nymex was certainly doing its part to revive a cash market that had softened considerably late last week, one trader said. He said weather-driven load wasn't likely to pick up much Tuesday, but the screen's two-day run-up should suffice to keep cash quotes on the rise.

The Monday morning formation of Tropical Depression (TD) 11 in Mexico's Bay of Campeche aroused little concern among gas traders. Although TD 11 was upgraded to Tropical Storm Jose late Monday afternoon, it already was close to land on a projected tracking that would take it ashore in central Mexico sometime that night. However, a tropical wave that was inflicting showers and thunderstorms on the Turks and Caicos islands and southern Bahamas Monday afternoon, along with a couple of tropical disturbances in the eastern Atlantic, may have contributed a bit to Monday's bullish price mood.

Temperatures would get no higher than the mid 80s Tuesday from New England through the Mid-Atlantic, so a Gulf Coast producer wasn't surprised to see power generation load diminish in the market area. He noted that the New York City area had a "kind of steamy weekend" with highs around 98 degrees, but it was cooling off into the mid 80s Monday and Tuesday. "Maybe it was the new storm news along with futures strength" that spurred the physical market's gains, he surmised, adding that he wasn't hearing much talk about the Bay of Campeche tropical depression (it hadn't been upgraded at that point). He agreed with other sources that the screen spike had lifted late cash prices Monday, which was a good hint of further cash gains Tuesday.

A Calgary-based producer also reported higher prices in late trading that he attributed to the screen advance. The intra-Alberta market was strong compared to Westcoast's Station 2, he said, but he also saw good coverage of Westcoast T-South line transportation costs from Station 2 to the Sumas export point.

A Midwestern marketer said "weak" was a "really relative term" for the lower prices of last Thursday and Friday, since they were so high to begin with. She said her company had made one purchase of 2 MMcf/d at a Michigan citygate over the weekend for a customer that didn't baseload August gas, but other than that it haven't done any daily deals during August because of high prices (all points were at least a dollar above NGI's first-of-month indexes Monday, with many approaching or at $2 above index). The marketer said it was a little on the cool side in the Upper Midwest currently, but temperatures were due to rebound into the 80s by the weekend.

There's not much heat right now in the Northeast, and the forecasts are a little on the mild side for mid-August, said a regional marketer, so he assumed that the futures run-up on Friday was the main driver of Monday's cash rally.

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