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Outages, Imbalances Lift Cash Quotes; Futures Retreat

Physical gas prices rose about 4 cents overall Monday due to a combination of short-term outages, imbalances and a tendency to postpone purchases until Monday. Eastern points rose in nonuniform fashion, and California locations posted gains as operational issues surfaced at major entry points in the southern portions of the state. At the close of futures trading June had fallen 7.8 cents to $2.431 and July had shed 8.4 cents to $2.505. June crude oil dropped $1.35 to $94.78/bbl.

Traders were a little puzzled by the day's advance in the physical market and an eastern marketer suggested, "There may be some making up type stuff going on. If you were buying for the weekend, your highest loads are on Monday, and a lot of people may have elected to be short Monday and come in and make it up by buying on Monday for Tuesday.

"I don't think there is too much of that going on, but it's hard to compare weekend pricing with week day. Weekend loads are usually way off, and usually Monday for Tuesday is one of the strongest days of the week," he said.

Eastern power prices rose. IntercontinentalExchange reported that next-day power at Nepool rose $1.33 to $27.35 and power into PJM for Tuesday receipt added 31 cents to $34.39.

The gas price increases were far from uniform. Quotes on Algonquin were higher by almost a dime, but gas into Iroquois Waddington rose just a few cents. Deliveries of gas to Tennessee Zone 6 200 L gained nearly 15 cents.

Other eastern points firmed as well. Gas at Tetco M-3 added more than a nickel and parcels into Transco Zone 6 NY added a touch less than a dime.

Next-day prices at PG&E Citygate were flat, but points to the north and west jumped as Pacific Gas and Electric reported that Monday's flow rates of 3,891 MMcf/d fell below the lower end of the normal operating range of the pipeline at 3,900 MMcf/d. "[A]n OFO [operational flow order] may be called to maintain the integrity and reliability of the gas transportation system," the utility said.

Quotes at Malin jumped over a dime and Opal next-day gas was quoted about 8 cents higher.

Prices at Southern California locations rose as the Questar Southern Trails pipeline, a main delivery source for Southern California, remained idle. SoCal gas said it expected Questar would complete the necessary repair work and the line would be "back in service by gas day" on Tuesday.

SoCal Citygate, SoCal Border, and El Paso S Mainline were all up by about a nickel.

The hefty futures price drop belied the tempered trading day. "It was like watching paint dry," said a New York floor trader.

Prices opened about 3 cents lower as turbulence in petroleum and equity markets rattled through the market. "We opened at $2.46 and there were only two Clearport [block] trades that went up on the board. Usually there are more. We only had a 3-4 cent range all afternoon. The market has been higher for a number of days and you will see adjustments and profit taking like that. If we hold $2.40, I think we may see a pop back up."

The trader said any impact from falling crude and equity prices should have minimal effect on natural gas. "We are a domestic market."

Others are expecting the long-term fundamental picture of the market to change.

"The fundamentals of this market [short term] have not changed, but the psychology has," said Devo Capital President Mike DeVooght in a weekend note to clients. "Time will tell if we are just seeing an unwinding of short natural gas and long everything else trades and short covering of outright short trades or if we have really seen a trend change and a fundamental shift in the market. We suspect we are seeing a combination of them [both] influencing the market. We do however believe the long term fundamental picture is improving and will continue to do so."

From a trade perspective DeVooght said "we feel we are going to bottom slowly rather than up, up and away. Therefore, we will look for pullbacks to buy for speculation. For hedgers we still believe buying floors stacked in October is the way to protect yourself in this market. If you were unable to buy the protection earlier, you might consider doing so now."

DeVooght advised trading accounts and end users to stand aside, and told producers to hold on to long October puts to cover the summer strip purchased at a debit of 25-27 cents.

Weather bulls don't seem to have much to work with if near-term forecasts are correct. WSI Corp. of Andover, MA predicts warmth in its six- to 10-day outlook, but it is confined to the less populated regions of the country. "Anomalies as warm as 3-8 degrees above normal are expected to encompass the interior western and north-central U.S. The East, West, and Gulf Coasts are forecast to see anomalies average closer to seasonal levels."

WSI said, "Temperatures may trend warmer over most of the country than currently forecast. The European models advertise the AO [Arctic Oscillation] and NAO [North American Oscillation] will transition to positive phases in late May."

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