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Small Increases Return in Most of Cash Market

As a Gulf Coast trader had predicted Thursday, the 22.5-cent spike by futures that day was able to generate modest firmness in most of the cash market Friday. The screen boost was abetted by increases in cooling load in Texas and the Midcontinent, while the weekend decline of industrial demand had minimal impact.

Volatility remained muted as most price moves either up or down Friday were in single digits. Losses ranged from 2-3 cents to a little more than a dime, while a solid majority of points were flat to nearly 60 cents higher. The top gain -- by the Florida citygate -- was rather deceptive, though, as the next-largest increase was only about 15 cents.

Next-trading-day guidance from futures turned negative for Monday's cash market after the July natural gas contract gave back part of Thursday's increase with a loss of 7.6 cents Friday amid overall softness in Nymex's energy futures complex. Some analysts questioned whether Thursday's futures jump had any reasonable justification (see related story).

Excess supplies were starting to become a factor in western markets again. PG&E issued a systemwide high-inventory OFO (see Transportation Notes), while both El Paso and Westcoast said linepack was above their desired target levels.

In the East, however, hot weather in Florida prompted Florida Gas Transmission to keep an Overage Alert Day in place for at least the third straight day Friday.

Rainy weather was due to keep Midwestern peak temperatures subdued in the upper 60s to mid 70s through the weekend. The Northeast forecast was warmer than that, but Philadelphia at the southern end was the only major city in the region expected to get above the upper 70s Saturday.

Some parts of the eastern South were still failing to get as high as 90 late last week, but cooling load was starting to get serious farther west. Such locations as Little Rock, AR, Memphis, TN and New Orleans were predicted to reach the low 90s, while it was getting downright sizzling in Texas. Highs around 98 were predicted for Houston through Tuesday, and some sections of the Lone Star State were forecast to breach the century mark in degrees over the weekend. After a midweek cooldown the Midcontinent was starting to chip in some cooling demand again with highs around 90 predicted for Saturday.

Although a few upper 40s lows were still due in mountainous sections of the Rockies, they were being largely offset by daytime highs in the 70s. Otherwise, except for hot conditions in the desert Southwest and unusually warm highs in the low to mid 80s in Alberta, a mild to cool overall forecast was largely unchanged in the rest of the West.

Although futures tended to get much of the credit for rallying cash prices Friday, a Midcontinent producer was a bit dubious about the relationship. He said he has tended to see some disconnect between futures and cash lately. Instead, he thought rising heat levels, including in his own area, were boosting power generation demand for gas. There likely also was some storage buying involved in Friday's modest spot price firmness, he said.

Despite the prevalent small gains, the producer said the market was still looking rather weak to him, especially in the Midcontinent. He reported a few intraday cuts in flowing supplies Friday, and said weekend prices tended to fall near the end of trading. For instance, he said, Southern Star Central started the day around $2.40 but he was able to pick up a late package in the mid $2.20s.

The decline of drilling rigs engaged in the search for natural gas in the U.S. has accelerated again, according to the Baker Hughes Rotary Rig Count (http://intelligencepress.com/features/bakerhughes/). After falling by only three in the previous week, the count for the week ending June 12 was down by 15 to 685, Baker Hughes said. Three rigs were deactivated in the Gulf of Mexico while the onshore tally dropped by 12. The latest Baker Hughes count was 6% lower than on May 15 and down 54% from June 13, 2008.

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