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Northeast, East Lead Broad Gains; Futures Rebound On Short Covering

Physical gas for Wednesday delivery gained ground in Tuesday's trading with advances across both market centers and producing regions. Largest advances were seen in the Northeast and East as forecasters called for warm temperatures and oppressive humidity.

All but a handful of locations made it to the "win" column and gains were deep into double-digits along the Eastern Seaboard. Producing regions such as the Gulf and Rockies were able to post gains of a few cents. At the close of futures trading July was able to reverse a string of losses extending back to last week and rose 8.9 cents to $4.535 and August gained 8.8 cents to $4.556. August crude oil shed 14 cents to $106.03/bbl.

Next-day prices advanced in New England and the Mid-Atlantic as temperatures were forecast above seasonal norms, but load enhancing humidity also added to stronger pricing. Forecaster AccuWeatther.com predicted the high in Boston Tuesday of 84 degrees would hold steady Wednesday, but Wednesday's heat index was expected to reach 86. By Thursday temperatures were expected to ease to 80, just one degree above the seasonal norm.

New York City's high Tuesday of 81 was seen rising to 84 Wednesday, but with the humidity adjustment Wednesday's high reaches a sultry 91. Thursday's maximum was predicted to be 84 also, just above the late-June norm of 82. Washington DC's Tuesday high of 88 was forecast to rise to 89 Wednesday with a heat index of 95. By Thursday the high temperature is seen easing to 88, two degrees above normal.

"Higher humidity will return to the East and will set the stage for numerous, drenching thunderstorms at midweek," said AccuWeather.com meteorologist Kristina Pydynowski.

"Wednesday is when the atmospheric faucet may be turned wide open throughout the Northeast,” she said. “Drenching thunderstorms will return this day and may continue into the nighttime hours. The second half of Wednesday is likely to be more active than the morning along the I-95 corridor, potentially meaning a slow commute home from work with possible flight delays. Baseball games Baltimore, Philadelphia and New York City could face delays. The thunderstorm chance will linger across New England through Thursday, [and] this could to be said for more of the Northeast if the storm is slower to depart."

Gas for Wednesday at the Algonquin Citygates vaulted 43 cents to $3.79 and parcels into Iroquois Waddington added 6 cents to $4.74. Gas on Tennessee Zone 6 200 L jumped 53 cents to $3.97.

In the Mid-Atlantic gas bound for New York City on Transco Zone 6 rose by 85 cents to $3.75 and on Tetco M-3 Wednesday gas came in at $3.40 up 51 cents.

In the Marcellus prices were also firm. Gas on Tennessee Zone 4 Marcellus added 34 cents to $2.96 and gas on Transco Leidy changed hands at $2.96, up 50 cents.

Next day power prices were mixed. The IntercontinentalExchange reported that Wednesday peak power at New England ISO's Massachusetts Hub rose by $6.79 to $47.94/MWh but peak Wednesday power at the PJM West terminal fell $2.56 to $50.77/MWh.

Producing region prices rose, but at a slower rate. In the Rockies Wednesday gas on CIG was seen at $4.30, up 3 cents and at the Cheyenne Hub Wednesday parcels gained 3 cents to $4.43. At Opal next-day deliveries added a penny to $4.44 and on Transwestern San Juan Wednesday gas slipped a penny to $4.47. On Northwest Pipeline Wyoming Wednesday gas came in at $4.37, up 3 cents.

Futures traders saw the day's advance as the result of short covering prompted by nervous sellers who initiated short positions last week when prices took out a long term trend line. They see the market ultimately returning to $4.77.

Following Monday's July 8-cent pounding, analysts see a conflict between short-term selling and longer-term fundamentals. "[Monday's] selling sustained a sharp one-week price decline that saw values advance to as high as $4.88 last Monday. Other than another 3-4 Bcf bearish miss in Thursday's EIA report, we haven't seen a major change in the balances during the past seven days," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Monday.

"Cooling degree days during the past month haven't varied significantly from normal trends. Furthermore, weekend updates to the one-to two-week views appear skewed towards the supportive side with above normal trends widely expected next week and into the second week of July. Nonetheless, large speculative entities continue to press the short side of this market assertively, and it would appear that last Thursday's uptrend line violation that extended back to mid-May may have provided the trigger in this regard. The significance of this technical development was seen [Monday] when the early rally failed right at the trend line break. Short-term bearish technical factors can easily outweigh long-term bullish fundamental forces in any market, and this appears to be the case with the nearby gas futures. While our longer-term bullish view in quest of $4.85 remains intact, we will suggest caution in approaching the long side given negligible chart support until the $4.40 area."

Ritterbusch is optimistic that "this market could snap back quickly and dramatically as it has done on two occasions within the past month. Any existing longs should be prepared to risk below the $4.40 level and we would prefer to add on strength to above Friday's highs rather than attempt to pick a bottom to the past week's price plunge."

Tom Saal, vice president at INTL FC Stone in Miami, in his work with Market Profile said he expects the market to test Monday's value area at $4.483 to $4.461 before moving on and testing $4.546 to $4.524. "Eventually" he envisions a test of $4.682 to $4.616.

Saal added that he prefers to "use Market Profile chart analysis over pure fundamental analysis because it's much more efficient at revealing information. Market Profile analyzes the market from the 'inside-out' at the transaction level by observing trading behavior of only participants. Pure fundamental analysis views the market from the 'outside-in' making ad hoc observations about what 'ought to be' (possibly invoking confirmation bias)."

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