The cash market on average was unchanged Wednesday as weather forecasts for major metropolitan areas showed little in the way of near-term heat, although warmth was forecast for the Midwest and Ohio Valley into the Father's Day weekend. Physical prices were within a few pennies of unchanged at most points and at the close of futures trading July had eased 4.7 cents to $2.185 and August had slipped 5.1 cents to $2.236. July crude oil shed 70 cents to $82.62/bbl.

Temperatures at major eastern cities for Thursday and Friday were forecast right at seasonal norms. AccuWeather.com predicted the high in Boston Thursday and Friday would be 71 degrees, well below the normal high this time of year of 75. New York City was expected to enjoy highs of 76 Thursday and 79 Friday, right at the normal high of 78. Philadelphia was anticipated to see highs of 79 Thursday and 80 Friday, just off the seasonal norm of 82.

Quotes on Transco Zone 6 into New York were off by a couple of pennies and deliveries to Tetco M-3 were flat.

Farther north Thursday gas on Algonquin advanced by a couple of cents but gas at Iroquois Waddington dropped by about the same amount, as did quotes on Tennessee Zone 6 200 L.

Even though AccuWeather.com forecast moderately above normal temperatures for the next couple of days in the Midwest, next-day prices slumped. Detroit was expected to see a high of 77 Thursday and 83 Friday with the normal high of 79. Chicago's high of 83 Thursday was anticipated to rise to 90 on Friday, well above the normal high of 79. Milwaukee's forecast high of 74 Thursday was predicted to jump to 82 on Friday, well ahead of the normal seasonal high of 74.

Next-day quotes at Michcon and Consumers were flat and gas at the Chicago Citygate was seen a few cents lower. On Alliance gas for delivery Thursday fell a couple of pennies and on Northern Natural Gas' Ventura point, Thursday deliveries were seen almost a nickel lower.

Rocky Mountain and West Coast prices were on the plus side and full pipelines in California have prompted some price disparities. Quotes at Malin are about $2.06 for Thursday deliveries and PG&E Citygate was quoted about $2.55 for a seemingly healthy 49-cent spread. "The pipeline is full, so anyone who wants to move gas has to do it at the interruptible rate. That rate plus the Malin price should about equal the PG&E Citygate," said a California trader.

Most shippers should be unwinding that spread if they can, he said. "The variable cost of shipping from Opal to Malin is in the neighborhood of 4 cents so if you have baseload gas at Opal you should be selling it back at Opal and replacing it with gas at Malin."

Futures traders utilizing trend-following methods see no let-up in the ongoing move lower. "It's still a short," said an Oklahoma City broker. "When the market looked like it was going to break $3 back in May, the model flirted with going flat or possibly long, but it never got there. For the market to get me interested in a long position, it would have to trade in the $2.95 to $3.10 range and to enter a long trade it would have to close above $3."

Thursday's Energy Information Administration (EIA) weekly inventory figures should provide some fundamental input to determine if the move lower is likely to continue. The massive storage surplus over the last several weeks has been slowly eroding and for the week ended June 8 that trend, at least relative to the 5-year averages is likely to remain in place.

Last year 72 Bcf was injected and the five-year average is for an 88 Bcf build. Ritterbusch and Associates is calculating a 71 Bcf increase and a Reuters poll of 27 traders and analysts revealed an average 74 Bcf with a range of 67 Bcf to 85 Bcf. Industry consultant Bentek Energy predicts a 75 Bcf gain.

How strong a power burn still remains may be determined more precisely with the inventory data, but conventional wisdom has it that the only factor supporting natural gas prices is the recent trend of coal-to-gas switching. A warmer-than-normal summer could help with power demand and use of natural gas. "[I]n turn that is about the only thing that is keeping the natural gas price north of $2.00/MMBtu," said Sandy Fielden of Hoffman Power Consulting in an RBN Energy Blog.

"But in the summer of 2012 we have a quandary. In 'normal' years (seems like we don't have many of those), the hotter it gets...the more cooling degree days we have, then the more gas gets burned. But this year it is more complicated...Utilities and other power generators have been running gas-fired peaking units as base load 24/7 to take advantage of low gas prices. But as it gets hotter, utilities need to switch back to coal for baseload so they can use peakers as peakers."

Hot weather at some levels can actually decrease use of natural gas. "The hotter it gets, the more coal baseload will be necessary. So there is a CDD [cooling degree day] range where gas consumption could actually decline as it gets hotter. Of course, when it gets very hot then all the coal and gas units are running and that will kick gas demand into overdrive, just like any year. With the low natural gas prices during the summer of 2012, it could be that fewer CDDs might be better for natural gas demand than more CDDs, at least up to a point," Fielden said.

For the moment, the number of CDDs is probably not sufficient to prompt a switch back to baseloading coal. The National Weather Service for the week ending June 16 forecasts only slightly above-normal accumulations of CDDs for major energy markets. New England is expected to see 15 CDD, or four more than normal; and the Mid Atlantic states of New York, New Jersey and Pennsylvania are forecast to have 35 CDD, or 11 more than normal. The Midwest from Ohio to Wisconsin is anticipated to have 41 CDD, or nine more than its seasonal tally.

The problem is that at late spring it is something of a game of power roulette. A dispatcher is only one warm spell away from having to shut down his maxed-out gas peaking units and painstakingly fire up coal units to provide additional capacity.

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