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Cash Rally Short-Lived; Softness Likely to Continue

Tuesday's overall rebound in the cash market didn't last very long as quotes fell at all points Wednesday. Besides the drag of a 12.9-cent futures decline a day earlier, Wednesday's market was forced to acknowledge that already-light weather-based demand was tending to recede even further.

Losses ranged from a little less than a dime to a little more than 30 cents and were fairly evenly dispersed among the various geographic areas. Declines failed to reach double digits at only Texas Eastern-East Texas and Cheyenne Hub.

It's highly unlikely that cash numbers will be able to stage a repeat of Tuesday's rally on Thursday after July futures experienced an even steeper slide of 35.4 cents Wednesday as economic news began to turn more negative again (see related story).

Some western problems with excess supply were easing. El Paso had ended a location-specific Strained Operating Condition while saying overall system linepack had returned to normal. However, PG&E kept a high-inventory OFO in place through Thursday and Westcoast continued to report "very high linepack conditions" in its Mainline North and Mainline Central segments; Mainline South linepack was merely "high," it said.

The South is starting to lose some of the heating load that had been increasing earlier this week. Highs that had been approaching 90 Tuesday and/or Wednesday in such locations as Atlanta, Memphis, TN, and Little Rock, AR, will only reach the mid 70s to low 80s Thursday, according to Madison, WI-based Weather Central.

Temperatures will tend to move in opposite directions Thursday in the Northeast and Midwest -- lower in the former region and higher in the latter. Bottom line in both cases, though: cool to mild highs in the 60s and 70s that are not conducive to substantive gas demand.

The West also will see mixed weather trends, with the Rockies getting warmer while the Pacific Northwest and Western Canada cooling down. Some consistency will be around, though, as the California coast remains cool and much of the desert Southwest continues to see highs in the 100-degree vicinity. Again, however, other than the Southwest heat and such anomalies as a low in the mid 30s predicted for Edmonton, AB, heating and/or cooling load will stay fairly scarce in the region.

The two storage facilities of Southern Natural Gas in Louisiana and Mississippi were slightly more than three-fourths full less than two months into the traditional seven-month (April-October) injection season. As of May 28, 45.8 Bcf, or 76%, of total working gas capacity of 60 Bcf was in place, Southern said. That compared with 32.2 Bcf (54%) on May 29, 2008 and 41.1 Bcf (69%) on May 31, 2007.

Despite Wednesday's price drops, some pipes such as Columbia Gas in Appalachia were seeing increased trading volumes on IntercontinentalExchange (ICE), from 566,300 MMBtu Tuesday to 582,900 MMBtu Wednesday. However, some locations continued to see very thin liquidity on ICE as the on-line trading platform reported that NGPL-Louisiana dropped from 13,500 MMBtu Tuesday to 7,400 MMBtu in two deals Wednesday.

A Midcontinent producer noted that fairly comfortable temperatures had returned to his area after a hot beginning of the week and should remain for at least another day or so. Replenishing storage is about the only meaningful demand component in the market right now, he said, and that may not last much longer. Midcontinent storage is "filling up quickly just like everywhere," he said.

SunTrust Robinson Humphrey analyst Cameron Horwitz said he expects a 119 Bcf storage injection to be reported Thursday for the week ending May 29. Tim Evans of Citi Futures Perspective is expecting a 115 Bcf build for the week ending May 29, to be followed by injections of 105 Bcf and 100 Bcf for the weeks ending June 5 and June 12, respectively.

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