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Cash Points Up Across the Board as Futures Rally Yet Again

Despite a lack of support from the screen's Friday session, cash market points received a futures-related boost on Monday for Tuesday delivery. All points posted gains as July natural gas futures exploded higher.

Most market point averages around the country gained between 20 to 30 cents, while some West Coast points gained 30-plus cents on fairly heavy volumes. If Monday's gains lacked Friday screen support, then cash traders on Tuesday should fasten their seatbelts following Monday's action in July natural gas futures. The front-month contract cruised north of the psychological $4 price level to close the regular session at $4.182, up an astounding 32.5 cents from Friday's finish (see related story).

Commenting on the strength exhibited by the cash and futures markets on Monday, a Northeast buyer said he wasn't sure what was driving the rally this time. "You tell me what it is this time around," he said. "Is it the warm weather, the hurricane forecasts or what?"

Cash prices were strong basically everywhere, although there were some cheaper prices to be had in Canada. "We can buy gas in Canada or the U.S. and what we found on Monday is that gas in Canada was cheaper relative to Tennessee and Texas Eastern," he told NGI. "We bought some day gas Monday, but it all came from Canada. This is a departure from what we have been doing recently. We've been mostly buying our gas on pipes down in Texas and Louisiana. I talked to a few guys down in the South and they said the heat has really hit Texas. Once the air-conditioning load kicks up, prices in those places really run up."

Echoing the storage story being heard around the country, the buyer said his company came out of the winter OK and is "pretty solid" on storage gas. "We're right on schedule in terms of refilling our storage, so things are good."

The debate continues as to when the markets will begin to feel the pinch of the months-long drastic reduction in drilling rigs searching for natural gas in the United States. After falling by only three rigs in the previous week, the count for the week ending June 12 was down by 15 to 685, Baker Hughes reported Friday. 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.

The Northeast buyer wasn't so sure the impact would register at all due to the uptick in shale gas production (see Daily GPI, June 10). "Sure they keep taking rigs off-line, but the countervailing measure lies in Appalachian and shale gas. The growing production levels from these plays is quite possibly offsetting the rig reductions elsewhere."

What a difference a day makes, especially when talking about the weather. Monday's forecast for the near term from the National Weather Service (NWS) is much more bullish than it's Sunday view. On Sunday, the NWS six- to 10-day outlook predicted that the West Coast and the eastern half of the United States would exhibit below-normal conditions for June 20-24, while West Texas, New Mexico, Colorado, Wyoming and Montana would see above-normal temperatures.

On Monday, a lot more red came into the picture. The NWS said from June 21 to 25, below normal conditions would only be seen in the Northwest and Northeast while a large square of territory (Arizona through Montana to Wisconsin down through Mississippi) would see above-normal readings.

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