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All Points Fall as Weather Boosts Fade Quickly

Cash prices fell across the board Wednesday as the influx of chillier weather in northern market areas that had boosted quotes Tuesday proved to be short-lived. Tuesday's June futures decline of 5.6 cents was another bearish influence on the physical market Wednesday.

Midcontinent, Southwest and California numbers tended to take the biggest of Wednesday's price hits, which ranged from about C3 cents at Westcoast Station 2 to a little more than 70 cents in San Juan Basin.

A high-inventory OFO by PG&E (see Transportation Notes) indicated that excess supply is becoming an issue again in western markets. But despite the OFO, Malin and the PG&E citygate each fell only 35 cents or so while Southern California border quotes dropped by more than half a dollar.

And Florida Gas Zone 3 and the Florida citygate seemingly defied Florida Gas Transmission's warning of a potential Overage Alert Day due to forecasts of hot weather in the Florida market area by dropping over 30 cents and about half a dollar, respectively. The Zone 3 dip was one of the Gulf Coast's largest ones.

Predictions of Wednesday lows in the 40s in the Midwest and Northeast had helped to send prices higher Tuesday, but the surge in heating load turned out to be fleeting. Most of both regions will see temperatures peaking Thursday in the relatively balmy high 60s to mid 70s.

Cooling load will remain fairly strong in much of the western South as highs continue to reach the 90s Thursday, but widespread rainfall Wednesday will limit peak temperatures in the eastern end to the mid 80s, except in Florida.

A modest heat wave in the Rockies helped keep price losses in the region relatively modest. Denver is expected to top out around 85 degrees Thursday.

Less than two months into the traditional seven-month storage injection season, the two facilities operated by Southern Natural Gas are nearly half full. With total working gas capacity of 60.0 Bcf, the pipeline estimated that 28.5 Bcf, or 48% of capacity, was stashed away as of May 22. However, Southern was well ahead of that refill pace in the past two years. On May 24, 2007 it had 38.9 Bcf (65% of capacity) in storage, and on May 25, 2006 the facilities contained a whopping 45.1 Bcf (75%).

A Houston-based marketer expects the expiration-day screen's increase of 11.5 cents to generate a moderate cash rally Thursday. He was not surprised that the June contract settled as high as it did, saying he thought it "might clear $12." He noted that the new prompt-month July contract was already over $12 in after-hours trading late Wednesday afternoon.

The marketer said he looks for the Chicago citygate index for June to be $11.87. It was averaging around $11.83 over the course of Friday and Tuesday, he said, but he thought Wednesday's gains added another 4 cents to the citygate value. Chicago basis and index-based deals moved around a lot Wednesday because the screen also was volatile, he said. He figured last-day settlement basis at about minus 5 cents.

"It is crazy" how indexes are spiking again for June, said an industrial end-user. He said he encountered no problems with obtaining physical molecules for June; the problem was how high the prices were. He thinks many traders are waiting to see how storage numbers turn out in the near term before they make any new strategic market moves.

Futures traders are indicating further big gains in June first-of-month indexes. The June contract rose 11.5 cents on expiration day to settle at $11.916, or 63.6 cents higher than the May closeout.

Citi Futures Perspective analyst Tim Evans expects an 82 Bcf storage injection to be reported for the week ending May 23. Looking further ahead, he projects increasing builds of 100 Bcf and 115 Bcf for the weeks ending May 30 and June 6, respectively.

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