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East, Northeast Lead Rambunctious Weather-Driven Gains; Futures Advance

Physical gas for Tuesday delivery jumped higher in Monday's trading, led mainly by weather-driven gains in the East and Northeast. Forecasters called for warm, humid conditions across major eastern power grids, and a strong power environment helped buttress the spot gas market. Gains also hit triple digits in the Mid-Atlantic, and more modest advances were seen in the Great Lakes, Midwest and the producing regions. The overall market gain came in well ahead of 20 cents.

Futures trading was less enthusiastic. August settled at $4.461, up 5.2 cents and September gained 5.1 cents to $4.440. August crude oil shed 37 cents to $105.37/bbl.

Weather forecasts across the East into the Ohio Valley and Midwest called for sultry summertime weather. Looking at the New England power grid forecaster WSI Corp. predicted summer weather this week.

“Hot and increasing humid conditions are expected through the middle of the week, though this air-mass will likely fuel scattered storms across northern areas each day. A cold front is expected to slowly slide across the Northeast during the end of the week with rounds of heavy showers and storms, [and] period rainfall amounts may locally exceed one inch…

"Highs will generally warm into the 80s to low 90s. Lows may range in the 60s to low 70s. Humidity levels should remain high ahead of the cold front during the end of the week, but wet weather may knock temps down into the mid 70s to mid 80s.”

Next-day power prices responded accordingly. IntercontinentalExchange reported peak power Tuesday at the New England ISO's Massachusetts Hub rose $12.58 to $66.10/MWh, and deliveries of peak power to the PJM West Hub added $11.23 to $82.79/MWh.

Next-day gas at the Algonquin Citygates jumped $1.87 to $4.89, and deliveries to Iroquois Waddington rose 48 cents to $4.70. Gas on Tennessee Zone 6 200 L gained $1.60 to $4.89.

"Warm and humid conditions” will prevail the next couple of days, WSI said of the PJM grid. “This air-mass and a storm system moving across the northern tier of the nation will support the chance of scattered showers and thunderstorms, mainly across western PJM. A prefrontal trough and cold front will push the best chance of heavy showers and thunderstorms into the Mid Atlantic by Wednesday.

"The cold front may sag into the Mid Atlantic during the end of the week and interact with tropical moisture moving up the Eastern seaboard, [and] this may lead to round of heavy showers and thunderstorms. On the other hand, high pressure and tranquil weather should begin to overspread western PJM."

Temperature-wise, "highs should warm into the 80s to low 90s, if not warm by Tuesday. Parts of western PJM may trend cooler and less humid during the middle of the week, but it will remain hot and humid across the Mid Atlantic with highs in the mid 80s to mid 90s. Humidity levels should remain high ahead of the cold front during the end of the week, but levels should relax across western PJM. The front and its associated wet weather may knock temps down into the 70s and 80s."

WSI said renewable generation should get a boost in the form of a “southwest to west breeze surpport[ing] elevated wind generation into the middle of the week. Generation may peak late Tuesday upwards of 2,500 MW. This breeze and wind generation is expected to relax during the end of the week.

“The recent and expected wet weather will support elevated streamflow and favorable hydro generation potential throughout the period. Variable cloud cover may hamper solar generation at times through the middle of the week, but clouds may thicken during the end of the week."

Gas bound for New York City on Transco Zone 6 added $1.30 to $4.20, and parcels on Tetco M-3 gained a stout 96 cents to $3.88. In the Marcellus gas on Transco Leidy jumped 76 cents to $3.14, and packages on Tennessee Zone 4 Marcellus changed hands 34 cents higher at $2.76.

Increases across the Great Lakes were not quite as robust. At the Joliet Hub, Tuesday packages gained 10 cents to $4.52 and deliveries on Alliance rose by 10 cents to $4.52. Gas at the Chicago Citygates tacked on 8 cents to $4.50, and deliveries on Consumers were seen 2 cents higher at $4.63. Packages on Michcon rose a penny to $4.60.

Even with the forecast for heat and humidity, a Michigan marketer was uncertain of the spot purchases going forward. "It's going to be down in the 70s with overnight temperatures in the 50s,” the marketer said Monday. “Under that scenario if looking ahead we think it's going to heat back up, prices may be higher. You never know for sure.”

Producing regions also posted gains. Gas on ANR SE added 5 cents to $4.35, and gas on Columbia Gulf Mainline added a nickel to $4.33. At the Henry Hub, Tuesday packages rose 4 cents to $4.42 and parcels on Tetco E LA were up 4 cents to $4.34.

Futures traders didn't see much significance to the day's 5-cent advance. "We are still in this range of $4.25 to $4.75," said a New York floor trader. He said one way to make money in what seems to be a range-bound market would be to sell some volatility, out-of-the-money puts and calls and let time decay set in.

If the conclusions of some are correct, short-term bulls may have to go into hibernation. "Natural gas settled lower across the board. Gas has been steadily moving lower after failing to push above key resistance ($4.80) earlier this month, [and] at week's end, we were approaching the bottom side of its recent trading range," said DEVO Capital President Mike DeVooght in a weekly note to clients.

"Gas has been under pressure the past couple weeks, primarily because of higher than anticipated storage injections and the lack of any significant cooling demand. Many that have become bullish on gas prices have done so because they anticipate ending the summer at historically low storage levels. That may very well be the case if we don't have a cool summer, but if we do, we will start to see the deficit continue to tighten, which will take wind out of the short-term bull sails.

“To have a substantial bull market, we feel we need to see an uptick in demand to offset the steady production increase we are experiencing in the U.S. We could see short-term weather-related spikes, but we still feel selling rallies above $4.50 for producers is an attractive forward selling level."

DeVooght said end-users and trading accounts should stand aside and said those with exposure to lower prices should hold the balance of a short summer strip initiated at $4.20-4.30. A second short summer strip begun at $4.50 should also be held.

The remainder of the summer strip settled Friday at $4.394.

Joe Bastardi, meteorologist at WeatherBELL Analytics, said in a 20-day forecast Monday there is little in the way of change.

"Days one to five: major cold shot down Plains pushes into the East, ending the warm surge while the West warms, [and] days six to 15: pattern remains transient. Forecast based on pattern repetition." According to the NOAA Climate Forecast System, days 15-35 “are very cool."

WeatherBELL figures show cooling degree day requirements for the next 15 days at about normal. It predicted nationally an accumulation of 162.2, fewer than last year's 174.6, about right in line with the 30-year average of 159.6.

"Weekly Market Profiles show higher-priced untested Value Areas to be tested,” said Tom Saal, vice president at INTL FC Stone, in his work with Market Profile said. He expects the market to test last week's value area at $4.453-4.581 before moving on and "eventually" testing $4.654-4.758. "Back years, Cal'15, Cal'17 and Cal'19 are getting oversold; buyers be ready."

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