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Cash Mostly Firm as Futures Decline; CME Faces Allegations of Fraudulent Activity

Physical gas for Tuesday delivery traded higher Monday as a broad cold front was forecast to work its way east and by mid-week send temperatures 10 or more degrees below normal.

Gains at Appalachian, New England and Mid-Atlantic points easily outdid softness in California and the Rockies by about a dime. Futures worked lower amid allegations of unfair practices by CME Group, and at the close May was down 6.0 cents to $4.560 and June fell 5.3 cents to $4.582. May crude oil added 31 cents to $104.05/bbl.

New England and the East Coast managed gains of more than a dollar as a cold air mass was forecast to grind through the nation's midsection and send warm weekend temperatures in retreat. Forecaster Wunderground.com predicted that Boston's high of 74 degrees Monday would fall to 64 Tuesday and tumble to 45 on Wednesday. The seasonal high in Boston in mid-April is 55. New York City's 73 high on Monday was predicted to slide to 63 Tuesday and drop further to 51 on Wednesday. The normal high in the Big Apple is 61 this time of year. Washington, DC, was expected to see its balmy 80 degree high Monday fall to 71 Tuesday and 53 on Wednesday. The seasonal high in Washington, DC, is 66.

Not only were cool temperatures forecast, but showers and thunderstorms were part of the mix as well. "A strong cold front will stretch from southern Texas to the central Great Lakes [and] this system will push a cold air mass southward across the central third of the country," said Kari Kiefer, Wunderground.com meteorologist. "As this system interacts with a warm, muggy air mass surging northward from the Gulf of Mexico, numerous showers and thunderstorms will develop across a handful of states. During the first half of the day [Monday], stormy weather will push across the Mississippi Valley, the western Gulf Coast, the Tennessee Valley, the upper Midwest and the Ohio Valley. During the afternoon and evening, thunderstorms will shift eastward over portions of the Southeast and the eastern Great Lakes. Severe thunderstorms will be possible across the central Gulf Coast, especially over eastern Louisiana, Mississippi and Alabama."

Quotes at the Algonquin Citygates for Tuesday deliveries rose $1.14 to $5.22, and gas at Iroquois Waddington gained 54 cents to $5.17. On Tennessee Zone 6 200 L Tuesday packages came in at $5.19, up 78 cents.

The Mid-Atlantic and Marcellus were also firm. Gas on Tetco M-3 Delivery changed hands at $4.33, up 54 cents, and gas headed for New York City on Transco Zone 6 rose 73 cents to $4.30. Deliveries to Transco Leidy added a stout 80 cents to $4.00, and gas on Tennessee Zone 4 Marcellus surged 54cents to $3.87.

On Dominion South, Tuesday parcels were seen at $4.32, up 64 cents, and on Columbia Gas TCO next-day gas was flat at $4.50.

Futures trading was light with prices drifting lower on modest volume. "We were light on the May contract, only 67,000 contracts. This was not selling with any conviction," said a New York floor trader. "Public schools are off this week and Catholic schools the next week because of Easter, and that might get people going away and things of that nature.

"We are still looking at $4.50 as support underneath with $4.65 as initial resistance and $4.75 above that. I'm not sure what kind of activity we'll be seeing this week. It's been low volume wise."

The level of activity in the natural gas futures arena may be uncertain, but one area where activity was abuzz was at CME Group, owner of the New York Mercantile Exchange.

According to a Reuters story, a lawsuit has been filed against the CME's Chicago Board of Trade unit alleging that CME sold certain data to high-frequency traders thus depriving other traders access to the real time, transparent data they thought they were getting.

There is no reported evidence that this misuse of data took place in natural gas futures trading, but the lawsuit seeks class-action status for customers in energy, metal, equity index, agricultural, financial futures, as well as foreign exchange and interest rate futures. It seeks money damages, and a halt to alleged favoritism.

They way it might work, according to the New York floor trader, is that at present about 7 ticks (.01 cent) above and below the most recent trade volume is visible to all traders. Thus one can get some idea if the market is well bid, offered, balanced, etc. "When I put in an order, they [CME] can see which broker is handling the order, whether it's Goldman Sachs, Barclay's or whoever," the trader told NGI.

What is being alleged is that CME sold this data, which brokers were behind the bids, and offers above and below the market, to high-frequency traders at the expense of other traders. "I think it is done electronically. They wouldn't have any kind of people involvement in that. It's likely a program they would set up and sell to these guys to make money," the floor trader said.

"These guys [high-frequency traders] have programmers that they pay tons of money so they can figure out some kind of pattern to the ongoing data that they get. They will generate something that they can trade off of. It's the one who has the biggest computer that's making the money and who pays the money to these IT guys who can literally do anything with this data. It's crazy stuff."

Not quite as crazy is the near-term weather outlook, which is calling for shots of below-normal temperatures in the Midwest, which at the very least is likely to slow gas storage builds. Joe Bastardi of WeatherBELL Analytics said he expects "Major cold in two waves this week. The first is now and the second (centered in Plains) later this week. [A] new trough next week sends in more chill as the western ridge expands, [but] not as cold as this week's shot."

He does see "West-east orientated warmth in the South with cold across North sets up for Days 10-20. Northern Plains through Great Lakes remain cold, while warmth spreads out of the West into the southern Plains and Southeast."

WeatherBELL forecasts hefty near-term heating degree day (HDD) accumulations. Nationally days one through five come in at 75.9 compared to 49.5 last year and 51.5 on average. In days six through 10 54.4 HDDs are expected with 64.6 seen last year. The 30-year average is for 45.3 HDD.

Addison Armstrong of Tradition Energy saw Monday's weak open as the result of "profit-taking begun on Friday as cold that is gripping the eastern two-thirds of the country is forecast to ease by the weekend. He also notes directional traders taking the long side of the market "Speculators held a net-long position of 113,103 Nymex natural gas futures and options contracts in the week ended April 8th, according to the latest Commitment of Traders report released by the CFTC on Friday. That was an increase of 17% on the week."

Futures traders Friday were also looking for a rangebound market. At the close, May had lost 3.5 cents to $4.620 and June had fallen 3.6 cents to $4.635. "I think the market will have a tough time running up next week. I look for a range of $4.65 on the top and back to $4.45 on the bottom," said a New York floor trader. "It looks like a trading range, but the range has just ratcheted up," he said. "From May to October the whole board trades together. There's no [financial] incentive to store gas."

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