The physical market answered Tuesday futures double-digit decline with an overall tumble on average of 9 cents Wednesday as the screen continued to drop and weather forecasts moderated. Northeast points were particularly hard hit as spot power prices plunged. At the close of futures trading July had shed 6.7 cents to $2.418 and August was down by 6.9 cents to $2.471. July crude oil suffered a $2.94 loss to $87.82/bbl.

Quotes at eastern and Northeast points fell sharply as next-day power prices plummeted. IntercontinentalExchange reported that peak Day Ahead Locational Marginal Prices (LMP) at the New England Power Pool fell a whopping $7.87 to $29.25/MWh and peak next-day power into PJM fell even harder posting a $13.35 loss to $34.25/MWh.

Quotes on Algonquin Citygate dropped nearly 15 cents and deliveries into Iroquois Waddington were off by nearly a quarter. Deliveries to Tennessee Zone 6 200 L were down by 20 cents.

Transco Zone 6 next-day parcels and deliveries to Tetco M-3 slumped nearly 15 cents apiece.

Marketers were wrapping up bidweek activities and noted traders wrestling with the monthly choice of how much gas do they buy at index or purchase on the daily spot market. "A general rule is 80-20. Buy 80% at index and 20% on the daily market," said an eastern marketer.

He added that scheduling needs of customers typically would require customers to baseload 80% and let the remainder float with the market. "Some just have to buy that way based on their contractual obligations. They will have a feel of how much baseload they will have to take for sure, and then buy the remainder for the weekends. You don't want to have to be selling stuff back if you don't have to," he said.

He added that if someone wanted to time the market, they might go 50-50, but at present there was no great consensus to do that. "It just depends on how much risk you can take," he said.

A Great Lakes marketer decided to adhere close to the 80-20 rule as well. "We went 75% baseload [for June] as opposed to the 50% in May which didn't work out. He added that at present "the month is starting out on a cool note, and I keep hearing of people referring to a 90-day cooler-than-normal forecast, and I imagine that would keep the prices down because of less usage."

The National Weather Service in its most recent long term forecast said "The June, July, and August 2012 temperature outlook indicates enhanced odds for above-normal temperatures for most of the southern half of the continental U.S. This area includes parts of the central and southern Rockies, Southwest, Southern Plains, Lower Mississippi Valley, Southeast and Mid-Atlantic."

The marketer also noted that their customer base was more attuned to economic conditions than the vagaries of weather. "We do have the auto manufacturers, steel, and chemicals, but our clients are more along the lines of hospitals and schools. We have heard of some companies going in and buying gas at next to nothing!"

Next-day prices throughout the area were weak. Quotes on Michcon and Consumers were off nearly a dime and Chicago Citygate slumped over a nickel. Alliance was lower by 7 cents and Northern Natural Gas at Ventura was more than a nickel lower.

Texas points were also lower. Carthage, Katy, Waha and NGPL S. TX all finished nearly a dime lower.

Futures traders were looking for prices to find support about 10 cents lower. "I don't think it will go much below $2.32," said a New York floor trader.

The contraction in the storage surplus was the primary driver of higher prices which was able to push June futures as high as $2.75. Thursday's 10:30 a.m. EDT inventory report will give the bullish camp some additional fodder as expectations call for storage builds less than the historical averages. The report should serve as some indication of the extent a contracting storage surplus remains important.

Last year 89 Bcf was injected and the five-year average stands at 100 Bcf. Industry consultant Bentek Energy calculates a build of 71 Bcf and Houston-based IAF Advisors is looking for an increase of 70 Bcf. A Reuters poll of 18 market pundits revealed a 70 Bcf build as well with a sample range of 59 Bcf to 82 Bcf.

Commodity Weather Group in its six- to 10-day forecast shows a large ridge of above-normal temperatures centered over Kansas and Nebraska but below-normal temperatures running from Maine to New York to portions of North Carolina. The Pacific Northwest is also expected to be below normal. "The overall model consensus today [Wednesday] has trended cooler for both the six-10 and 11-15 day periods with persistent Eastern U.S. seasonal-to-cool troughing," said Matt Rogers, president of the firm.

"Recent Midcontinent ridge preferences seem to be shifting westward to engulf more of the Southwest and even more frequently into California. These areas could be hotter than our forecast, but we hesitated to shift as strongly in that direction given typically lower confidence in stronger day-to-day model changes. This adjustment leads to less heat concern for the Midwest, too, in both the six-15 day range. After [Tuesday's] impressive first-of-the-year 90s surge on the East Coast, our current forecast shows no more 90s repeats over the next two weeks," he said.

Market technicians suggest that July futures have a lot of work to do if the contract is going to bring a return to the uptrend, which saw the June contract trade as high as $2.75. "While Tuesday's price action strongly suggests a correction of the $1.902-2.759 advance is now in progress, it is important to note that the July contact ground to a halt right into $2.459-2.432 (1.618 a=c) [retracement support]," said Brian LaRose, an analyst at United-ICAP following Tuesday's trading.

"At this time, any turn higher will be viewed as corrective in anticipation of a larger degree decline. To damage the case for a larger degree retreat $2.682 must be exceeded."

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