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Cash Points Plummet; Futures Bulls Face Monday Test

Physical gas for weekend and Monday delivery swan-dived in Friday's trading as traders saw little incentive to purchase gas for what forecasters were calling mild weekend weather. Marcellus points took the hardest fall, aided by the well-known supply glut in the region, but New England, California, and the Midwest were right behind.

Futures continued on their downward trek as analysts see something of regime change with storage refill concerns becoming less of an issue. At the close June was off 4.1 cents to $4.531 and July had fallen 4.3 cents to $4.540. June crude oil lost 27 cents to $99.99/bbl.

New England quotes were down sharply as active weather patterns were expected to keep temperatures mild. The National Weather Service in southeast Massachusetts forecast that "a warm front will approach tonight [Friday] bringing a period of scattered showers before it lifts into northern New England Saturday. Behind the front a warmer and more humid airmass overspreads the region Saturday. A cold front will move across the area late Saturday night into early Sunday morning...yielding a round of scattered showers. High pressure builds in for mothers day [and] mild temperatures and unsettled weather are anticipated for most of next week."

Deliveries to the Algonquin Citygates for the weekend and Monday tumbled 33 cents to $3.83 and deliveries to Tennessee Zone 6 200 L fell 24 cents to $3.92. Gas at Iroquois Waddington shed 18 cents to $4.44.

Biggest declines were noted for Marcellus deliveries with Tennessee Zone 4 Marcellus falling 23 cents to $2.08 and gas at Transco-Leidy losing 64 cents to $2.03.

Gas bound for New York City on Transco Zone 6 fell 19 cents to $3.81 and packages at Tetco M-3 Delivery lost 23 cents to $3.72.

Midwest storage operators seem to be in the position of restocking into a falling market. "Midwest storage injection has been stronger this year in April with the low inventory level. The storage injection rate averaged 0.7 Bcf/d for April compared to 0.2 Bcf/d in the previous year," said industry consultant Genscape. "Storage injection averaged 1.0 Bcf/d so far in May, the same level as last May, [and] with the growth in Marcellus production , Midwest exports into Appalachia are being pushed back by about one Bcf per day."

It added that "Demand at the same time is declining year on year as cash price increases resulted in a decrease in coal-to-gas switching. The decline in imports so far are concentrated on sources from Western Canada, [and] the balance in Midwest in the near future heavily depends on gas consumption from power plants and back-haul flow on ANR and TGT. Midwest hub prices will likely receive strong downward pressure from the Gulf hubs for gas to flow south and strong downward price pressure from the coal-fired power plants for gas-fired plant generation to stay in the generation stack."

Downward price pressure was indeed at work in the Midwest for weekend and Monday deliveries. Gas at the Joliet Hub dropped 16 cents to $4.52 and deliveries to Alliance were off by 18 cents to $4.51. At the Chicago Citygates weekend and Monday packages were seen at $4.54, down 17 cents and on Consumers gas changed hands at $4.69, down 14 cents. Deliveries to Michcon skidded 16 cents to $4.70.

Futures traders saw Thursday's 17-cent plunge in the June futures as a bit overdone. The reported build of 74 Bcf was just a couple of Bcf above expectations and "hardly enough to merit such a big selloff, but nonetheless that's what we had, and I wonder if it was due to something besides just the storage number," said David Thompson, vice president at Powerhouse LLC, a Washington DC trading and risk management firm.

"The market had been advancing in slow, steady chops and didn't seem that suspect to that much of a washout on a percentage basis. It broke the 20-day moving average, and our MACD (Moving Average Convergence Divergence) is in negative territory. Clearly the advance has been busted. Monday will be an important day to see if the bulls can make any kind of counter attack."

Others also see Thursday's plunge as a game changer. It "prompt[ed] some selling that gathered momentum when 3 week lows were violated. The fact that [Thursday's] supply build was the 3rd consecutive larger than expected injection also conjured up ideas of an evolving trend in which production could finally be accelerating," said Jim Ritterbusch of Ritterbusch and Associates.

"Should this prove to be the case, constructing a bullish case on fundamental merits would be challenged until the hot temperature factor becomes more meaningful. At the same time, today’s fresh three-week lows have applied enough chart damage to shift this market into a near-term range that we would estimate at about $4.50-4.65, parameters that are roughly 15-20 cents lower than what we had been anticipating until today. In the absence of significant bullish assistance from the weather factor during the next couple of weeks, we feel that this market will simply be drifting into a new and lower trading range. We are, however, suggesting holding any bull spread positions."

Significant heat may be a stretch near term. Commodity Weather Group in its Friday morning forecast is looking for a mixed pattern with accumulations of market-bending heat perhaps limited to California. "While 80s should still surge into the Mid-Atlantic again Mon-Tue of next week with risks for near 90-degree temperatures from DC southward, there are more complications showing up today with regard to a potential backdoor cool front for the Northeast by Tue (maybe slipping as far south as Philly) and then even into the entire Mid-Atlantic by next Wed."

"The overall 6-10 day is same-to-cooler today with changes mostly to the cool side for the Deep South, including Texas, as well as over toward the East Coast. Heat in the West still looks very strong toward the middle of next week with near 100F highs for Sacramento and Burbank peaking next Wed. The 11-15 day looks more variable, but should lean seasonal to cool for the Midwest, East, and South with more warm to hot chances in the West again," said Matt Rogers, president of the firm.

Tom Saal of INTL FC Stone in Miami in his work with Market Profile said "The market is displaying a Neutral Week Formation in Market Profile, [and] showing signs of “uncertainty…today’s closing price is very important for next price move. The back years, Cal’15. Cal’17 & Cal’19 are overbought…..should work lower." He was looking for the market near term to test Thursday's value area at $4.560 to $4.666.

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