The cash market rode the support of widespread cooling load and two prior trading days of rising futures to record sizeable increases at all points Monday except in the Rockies. The return of industrial demand from weekend hiatus also contributed to price strength.
A large majority of the cash gains, which ranged from a couple of pennies to about 65 cents, were in double digits. The minority losses ran as big as a little more than a quarter. Cheyenne Hub, by virtue of its being the primary conduit for Rockies gas moving eastward to Midcontinent/Midwest points, was the only Rockies point to join the overall physical market surge.
There was some doubt about whether the price strength could continue through Tuesday. Not only did July futures give back 22.8 cents Monday, but a cold front will bring greatly needed (and cooling) rains to much of the South Tuesday and will proceed from there through the eastern Great Lakes area to take Northeast temperatures down a few pegs. But the Northeast was expected to continue seeing highs from the mid to upper 80s Tuesday before the cooldown begins in earnest.
Another cold front was already in the process of moderating heat levels in the Midwest, where Chicago was forecast to go from a high in the low 90s Monday to about 10 degrees less Tuesday. Much of the West will continue to be above average until a cold front arrives in the Pacific Northwest around Thursday.
It's not often that Henry Hub cash quotes match up as closely with prompt-month futures as they did Monday. The Hub averaged about $7.70, up a little more than a dime and only a penny or so above the screen's loss to $7.690. The July futures contract had held a premium of more 30 cents as recently as Friday. However, one source pointed out that the screen had seen most of its weakness after cash trading ceased, and thus had still been at a premium during the morning.
Transport constraints aggravating already limited takeaway capacity returned to bedevil the Rockies market. A Declared Deficiency Period is in effect through Friday at Northwest's Lava Hot Springs Compressor Station due to available capacity being greatly exceeded by nomination levels (see Transportation Notes). Kern River reported high linepack in the two farthest upstream of its four segments.
However, much like last week, a PG&E high-inventory OFO (see Transportation Notes) had no negative price impact; indeed, Malin and the PG&E citygate rose 35 cents or a little more. Most of the West outside the Rockies saw fairly large gains as power generation load for cooling remains heavy overall.
With a forecast for considerably milder heat in the Midwest, a Midcontinent marketer said he didn't think higher prices could continue Tuesday, at least in his market area. He perceived a lot of Monday's price strength being due to people making up for heavy power generation load over the weekend. "The plants we serve had burned a lot of gas," some of it unscheduled, during the weekend, he said, and if other generators were in the same boat, that meant quite a bit of replacement gas was being bought Monday.
The market has entered a "pretty normal" situation for early summer, the marketer continued. When it's very hot, cooling load supports prices; and when it's not, most of the buying is for storage injections, which allows for some weaker pricing occasionally. He doesn't expect futures to break out of range-bound ($7.50-8.00) trading anytime soon, saying that each time the screen gets above $8, it keeps getting knocked down again.
A Houston-based producer also looks for falling prices Tuesday, pointing to a general cooling of eastern weather through midweek and Monday's futures weakness. A good indicator is that cash numbers came down some in later deals Monday, "but not a whole lot," he said, so he would expect moderate softening to be the rule in most of the cash market.
The producer noted that his company had some trouble getting its gas scheduled into ANR-Southwest for Tuesday. Limited receipt capacity from Cheyenne Plains was part of the problem, but other suppliers were having similar hassles, he said, so it seemed like the constraints were more widespread than what would be supported by ANR bulletin board postings on maintenance (see Transportation Notes).
The number of drilling rigs searching for gas in the U.S. saw a large increase of 19 to 1,484 in the week ending June 15, according to the Baker Hughes Rotary Rig Count (http://intelligencepress.com/features/bakerhughes/). All of the gain was onshore, Baker Hughes said, as gas-seeking rigs in the Gulf of Mexico decreased by four.
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