Physical prices rose on average by about 3 cents Friday with gains widespread with the exception of Rockies and California points. Hot weather forecast across the East propelled some prices higher, but California was expected to see a cooling trend. Rockies prices continued to see increased competition from Canada. At the close of futures trading August and September each settled unchanged at $2.874 and $2.869, respectively. August crude oil added $1.02 to $87.10.

Rockies prices eased as producers were forced to compete with Canadian supplies reaching as far south as the San Juan Basin.

"We're all hoping that with some warm temperatures in the Pacific Northwest and some help from less hydropower, that some of that Canadian gas will stay in Canada," said a Rockies producer. "Bentek says that Canadian gas has been filtering down into the San Juan and blocking off gas from Texas. That's how bad it has been and it has pushed Ruby Pipeline way back."

The Ruby Pipeline has capacity in the neighborhood of 1.2 Bcf/d to 1.3 and volumes have been down to 700,000 MMcf/d and even lower, the producer said.

The influx of Canadian gas starts with the economics of the Canadian producers. "The western Canadian producers are in tough shape. It costs almost $2 to move gas via TransCanada to our eastern markets; storage is getting pretty full up into the Midwest in Illinois, and they keep raising the rates to ship it into Chicago. They are losing volumes so they have to allocate their revenues over fewer Mcf. Those guys in western Canada are in a tough spot and the only place they can come is down our West Coast.

"At some point this is all going to turn around. Everybody's No. 1 concern is can we make it to winter before storage maxes out and the spot market collapses because there is no place to put it," he said.

Rocky Mountain prices for Monday gas retreated. Northwest Pipeline Wyoming, Opal and Kern River Receipts were all down just shy of a nickel, but at the Cheyenne Hub weekend and Monday deliveries fell about 3 cents and CIG Mainline was seen about 7 cents lower.

The economics of moving gas from the Rockies to the West Coast were also not promising. The differential between Opal and Malin stood at about 2 cents.

California prices for the weekend retreated as weather forecasts called for more mild temperatures.

AccuWeather.com meteorologist Courtney Spamer said, "Major cities of the West including, Las Vegas, Salt Lake City, Sacramento, Boise and Spokane will soon get a break from the sweltering heat. While temperatures this week have been soaring over the deserts, Great Basin and interior valleys of the West, more typical temperatures are on the way for the weekend. Monsoonal moisture that has been invading from Mexico, will add humidity to the Southwest."

Her predictions show the moisture, in combination with the passing front in the Northwest, would bring more seasonable temperatures to the southwest by Sunday's end.

AccuWeather.com forecast Friday's high in Los Angeles of 83 would drop to 76 on Monday and Tuesday. The normal high in Los Angeles this time of year is 83.

The Southern California Border Average was quoted almost a dime less, and SoCal Citygate prices shed just more than a nickel. El Paso Mainline South dropped close to a dime. PG&E Citygate and Malin both eased a few pennies.

At eastern points prices rose as temperatures were forecast to sizzle. AccuWeather.com said New York's Friday high of 87 was expected to jump to 91 on Monday and 92 on Tuesday. The normal high in New York is 84. Washington DC's Friday high of 88 was expected to surge to 96 on Monday and 99 on Tuesday. The normal high in Washington, DC, is 89 this time of year.

Gas for Monday on Tetco M-3 added just over a nickel and deliveries to Transco Zone 6 New York gained nearly a dime. Weekend deliveries to Dominion rose over a nickel and gas into Clarington was about 2 cents higher.

Futures analysts look for prices to trade in the $3 area relatively soon. "Earlier when the contracts rolled off the board and the second month became spot, prices were tending to come down to the prompt month that rolled off," said Drew Wozniak, an analyst with United-ICAP.

"Over the last three rolls prices have been rolling up to the second month. The contango has held. The market is looking to trade over $3, but it's going to be slow unless you get storm activity going. While the industry is doing everything it can to get back into supply-demand equilibrium, it takes time to do that."

Longer-term forecasts have turned warmer as well. MDA Information Systems in its six- to 10-day outlook predicted above-normal temperatures and humidity over the northern half of the country. "Changes were mixed within this time frame over the Northeast, with a hotter start being followed by a cooler close to the period. The onset of the period is not only hotter with more upper 90s in the Northeast and Mid-Atlantic, but quite humid as well, which will likely keep lows near 80 [degrees] in many big cities.

"A more abrupt cool-down will evolve by the second half, bringing temps closer to normal in the New England states. The Midwest will remain quite warm throughout but will fall off some from earlier peaks. The West will see some slow warming trends as ridging expands westward again."

Analysts see the warmer temperatures adding a supportive tone to the market well into the month.

"Although CDDs [cooling degree days] will be downsized significantly from last week's exceptionally high levels, current forecasts still appear capable of forcing a further reduction in the supply surplus, a dynamic that has been in place for several months," said Jim Ritterbusch of Ritterbusch and Associates.

In his view, the continuing shrinkage in the storage surplus is a "dynamic [that] has managed to overshadow the static factor of a continued record level of storage that virtually assures an ample supply to meet next winter's requirement. This supply comfort is limiting upside price progress within the winter portion of the curve while nearby months continue to garner strength off of the exceptional temperature-related gains in power related demand, hence the significant strengthening in the spread curve during the past month."

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