Cash market prices rose on average about 7 cents overall Thursday with all but two points participating in the gains. Especially strong were Northeast points, but Great Lakes and Rockies locations participated in the rise as well. One of the two eastern market points showing a decline was affected by a pipeline leak in New York.

The Energy Information Administration reported an increase in natural gas inventories of 77 Bcf for the week ending May 18, about what traders were looking for. Prices initially rose but quickly reversed. At the close of futures trading, June had lost 9.0 cents to $2.647 and July had eased 8.7 cents to $2.709. July crude oil gained 76 cents to $90.66/bbl.

Reuters reported that a leak on a natural gas pipeline in Mount Vernon, NY, had disrupted supplies to several utilities in the New York City area. New York power and gas company Consolidated Edison Inc. said it is looking for the source of the leak. Con Ed added that customers were not affected by the leak. Con Edison operates the power and gas system in New York City and Westchester County, and its Orange and Rockland unit on the west side of the Hudson River from Westchester was asking marketers to move natural gas deliveries on the Tennessee pipeline, a major carrier in the area, to the Columbia or Algonquin pipelines, effective immediately.

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Traders see gas prices upstream getting hit. "Basically it is backing up a lot of gas at White Plains, and I think you will see [Tennessee] Marcellus at a pretty low price tomorrow. New York has options. They can bring gas in on Transco, Tetco, Tennessee and Iroquois," said an eastern marketer.

In late-day trading Thursday Tennessee Marcellus had plummeted to $2.05, the marketer said.

Some eastern points chalked up double-digit gains in trading for Friday delivery. Algonquin Citygate was quoted a dime higher, and Iroquois Waddington deliveries rose by more than a nickel. Gas on Tennessee Zone 6 200 L added more than a nickel as well.

A Great Lakes marketer said his company's customers have storage gas they can utilize and "we haven't been buying that much this week since we don't like the prices, but we will definitely buy Friday for over the weekend. We hope the price will be somewhat less than today [Thursday]."

The marketer said if his company could draw down on customers' storage gas, that would keep their prices lower than if they went to the spot market. He also said that they expected a high of 91 degrees Monday and "we are hoping we are on the edge of the high humidity. High humidity will send me inside in a heartbeat."

Prices across the Great Lakes and farther west posted solid gains. Consumers and Michcon were up by close to a dime, and Chicago Citygate rose just under a nickel.

Gas delivered on Alliance added just over a nickel and deliveries on Northern Natural Gas Ventura were up close to a dime.

Rockies prices were also firm. Gas at the Opal Plant tailgate and at the Cheyenne Hub added just over a nickel, and deliveries on CIG were about 4 cents higher.

Kern River Receipts added about 6 cents, and Northwest Pipeline Wyoming rose a couple of pennies.

Futures traders are scratching their heads. "The [EIA] number came out and it was slightly bullish and we lingered between $2.70 and $2.72 and then it fell out of bed," said a New York floor trader. "I don't have a good feel for the market. I don't know which way we are going."

The 10:30 a.m. EDT release of storage figures by the Energy Information Administration shed a bit more light on the issue of fuel-switching by electric utilities. Mild shoulder season weather has given some utilities the option of using their peaking units to baseload natural gas-fired generation at the expense of coal-fired power, but the onset of the summer cooling season will eventually require peaking capacity. Coal shipments generally can't be abruptly halted, and stockpiled coal has its limits.

Expectations for this week's storage build report centered around a mid-70 Bcf increase, which would make a small dent in the large storage overhang. With the 77 Bcf build stored gas now stands at 2,744 Bcf, about 750 Bcf more than both last year and the five-year average.

Bentek Energy and IAF Advisors of Houston were predicting a build of 74 Bcf, and ICAP calculated an 80 Bcf increase. Last year, 101 Bcf was injected, and the five-year average is 97 Bcf.

Rusty Braziel of RBN Energy argues that the recent 80-plus cent gain in spot futures is justified on a fundamental analysis of supply and demand. "[T]he gas-fired generators rescued the gas producers from themselves by cranking up gas-fired generation. That slowed down the march of natural gas storage inventories toward a hard landing sometime in the September-November timeframe. And the recognition that the gas market could dodge the bullet again this year was enough to jump start the run-up. At that point, all those who believed that natural gas hit a bottom piled on, and the result has been a 83 cent/MMBtu price increase," he said in a morning report.

Can it continue? Braziel points out that production is basically steady but the gas-fired power burn continues to increase. "[T]he big increase in price has been fully supported by the fundamental supply-demand balance. Production is flat, but demand is up -- enough so to change the trajectory of inventory growth."

As is often the case with natural gas, it all depends on the weather, but this time around the market has to address the coal issues mentioned above. Braziel jokes that storage will reach peak capacity on Nov. 9, 2012, but he does think that current conditions "make any long natgas position feel a little spooky, unless you really think that another very hot summer (or a destructive hurricane) is in the cards."

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