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Physical, Futures Part Company; July Down 6 Cents

Physical gas for Tuesday delivery staged an uneven advance in Monday's trading. Eastern points were the strongest, showing double-digit gains, and Appalachian locations were also firm. Great Lakes points were off a couple of pennies. At the close of futures trading, July had fallen 6.5 cents to $4.645 and August was down 6.5 cents as well to $4.635. July crude oil gained $1.75 to $104.41/bbl.

Next-day prices at Midwest and Great Lakes locations softened as weather is expected to be cool and wet over the next few days.

"A storm system moving across the southern Plains will shift northeast and bringing some rain and a thunderstorm to Chicago by midweek,” said AccuWeather.com’s Kevin Byrne. “The new week began with dry and cooler-than-normal temperatures with highs in the 70s and some sunshine on Monday. Due to the rain and accompanying clouds on Tuesday, it will be cooler with high temperatures failing to get out of the 60s, [and] temperatures will rebound Wednesday with highs in the mid-70s although it will remain cloudy with a shower and thunderstorm around."

AccuWeather.com forecast a high in Minneapolis Monday of 70 degrees would reach 78 Tuesday and 81 by Wednesday; the normal high is 77. Milwaukee's Monday high of 65 was seen rising to 67 Tuesday and 68 on Wednesday, 5 degrees below the seasonal norm. Chicago's Monday high of 64 was seen rising to 69 on Tuesday and holding on Wednesday. The normal mid-June high is 78.

Industry consultant Genscape Inc. reported changed flows into the Midwest.

"While the overall level of Midwest imports remained unchanged year-on-year, the distribution of the imports by pipeline has changed," analysts said Monday. "The Midwest is receiving more gas from Great Lakes, NGPL, Northern Natural, and Midwestern, while receiving less gas from REX, Northern Border, and ANR. Midwest imports from Upper Rockies have decreased year-on-year while imports from Canada have increased."

Quotes on Alliance slipped 4 cents to $4.70, and deliveries to the Joliet Hub fell 2 cents to $4.71. Gas for Tuesday delivery at the Chicago Citygates was down 3 cents tgo to $4.71 as well, and packages on Consumers eased 3 cents to $4.88. Gas on Michcon was also lower by 2 cents to $4.89.

In the Northeast, prices scored double-digit gains. Gas at the Algonquin Citygates jumped 46 cents to $3.79, and deliveries to Iroquois Waddington added 16 cents to $4.69. On Millennium, gas for Tuesday came in at $3.25, up 31 and on Tennessee Zone 6 200 L next-day parcels were seen at $3.81, up 39 cents.

The National Weather Service (NWS) in southeast Massachusetts expected highly variable conditions for the region over the next several days. Weak low pressure and “associated frontal boundaries will usher showers across the region with a few thunderstorms possible Tuesday,” said forecasters. “Dry weather is expected Wednesday into Thursday before a cold front brings a round of showers and thunderstorms Friday. Dry weather should return next weekend."

Other eastern points firmed as well. Gas bound for New York City on Transco Zone 6 gained 28 cents to $3.41, and deliveries to Tetco M-3 Delivery rose 25 cents to $3.40. Packages on Columbia Gas TCO were quoted a penny higher at $4.58, and on Dominion South next-day gas changed hands at $3.31, up 11 cents.

Futures bulls noted that in spite of the lower close, the case for higher prices remained intact with the July contract posting a new one-month high before slipping lower. In addition, upcoming injections into storage are not expected to show the same differentials to a year ago and five-year averages thus keeping the large storage deficit intact.

Risk managers are counseling those with market exposure to hold on to current positions. "Fundamentally, the natural gas market is mixed. Storage levels are 40% lower than last year, but U.S. domestic production hit another record level this week, and the EIA is projecting natural gas supply to outpace demand by 2015," said DEVO Capital President Mike DeVooght in a weekly report.

Last week’s announcement by the Environmental Protection Agency “to cut carbon emissions by 30% by 2030 puts added pressure on coal-fired power plants and supports the argument that natural gas is the fuel of the future,” he said (see Daily GPI, June 3). “It is hard to determine the immediate impact this mandate will have on natural gas prices. On a trading basis, we will hold current positions."

He advised trading accounts to "hold short June futures (rolled from April sold at $5.00-5.10) [and] end-users stand aside." Those vulnerable to lower prices are counseled to hold short the balance of two summer strips. One initiated at $4.20-4.30, and a second at $4.50 for an increased position.

"For the most part, long hedge funds are keeping upside pressure on prompt-month gas futures,” said analyst Alan Lammey of WeatherBELL Analytics. “And it's likely there will be continued strength in prices for at least the near-term (this week) for prices to potentially test the $4.85 area.

"While the market bears are pointing to the last several weeks of robust natural gas storage reports as a catalyst to keep prices from rallying too much, it’s important to note that so far this injection season, only about 96 Bcf of additional natural gas been injected into inventories over the first couple of months of the refill season. Looking ahead, as temperatures begin to ramp-up during the rest of the hotter months of the summer, the market will be able to better determine if the recent additional wellhead production, now solidly near 76 Bcf/d, will indeed be a saving grace or not to the overall supply perspective."

In its 2 p.m. EDT report Monday, NWS said it did not expect any tropical cyclones in the Atlantic, Caribbean or Gulf of Mexico in the next five days.

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