Cash prices galloped 35-40 cents higher across the country on Tuesday in response to Monday’s wild 37-cent jump in June gas futures and the continued strength in the gas and oil futures markets on Tuesday.

The June gas contract rose 3.8 cents to $6.269 and oil is poised to revisit the $39 extremes of February 2003. Some analysts believe crude might even make a run at its all-time high of $41.15 set on Oct. 10, 1990.

“As the panic over [oil] supplies breeds further panic, we can’t rule out a test of these [record] levels or even a new record peak, although we see the basic fundamentals as much more consistent with prices $8-10 lower,” said Tim Evans of IFR Energy Services.

Blame continuing gas price increases on psychological spillover from the crude oil pit, flat to declining domestic gas production, dwindling imports and forecasts for a hot summer and an active hurricane season.

The heat in California has been putting fear in the minds of traders about the potential for a hotter than normal summer nationwide and higher than expected demand from gas-fired power generation. Searing triple-digit temperatures have cooked the southern half of California to the point of triggering an emergency power transmission situation. SoCal Border prices marched up about 35 cents Tuesday to more than $6.

Weather Services International (WSI) said recently that it is expecting a warmer than normal June and July over much of the interior United States, with cooler-than-normal temperatures along the Pacific and Atlantic coasts and parts of the Southwest. “We expect a pretty warm summer this year, especially in the southern and central Plains, Great Lakes, Ohio Valley, and the Southeast,” WSI forecaster Todd Crawford said in a late-April notice. “After a cool spring, even the Northeast should warm up by late summer.”

Those predictions have put a little fear into the market because last summer was cooler than normal, hiding demand from much of that new gas-fired generation on the grid. But there is little else out there in the physical market this week to provide a basis of price support.

Prices are at least a dollar higher than where they were last year at this time, yet gas storage levels are substantially higher. The level of working gas in storage on April 23 was 53% higher than where it was at the same time last year. Working gas levels are only 34 Bcf below the five-year average and are 18 Bcf above the nine-year average, according to EIA data.

Meanwhile, the California heat wave isn’t causing a market disconnect, in which prices are higher in the West than in the East or Midwest. Prices in many other locations moved even higher than in the West Tuesday and the increase seemed to be based purely on a relationship with the gas futures market. Chicago, for example, jumped about 40 cents to the low $6.20s Tuesday. New York prices moved even higher to the low $6.70s. Florida saw a similar increase.

A Northeast LDC expressed anger over the price run-up, which he said was psychologically driven. “We’re okay in storage. What else could it be?” he asked. “We’re expecting some kind of market correction. This is ridiculous. We are backing off on some of our system purchases. We’re still trading though. People are still looking for gas despite the high prices.

“If we don’t by gas for our distribution system, we have our transportation capacity available to use to do swaps. Sometimes that facilitates trading. I think other utilities are holding off a little bit, too. There should be some additional transportation capacity out there for the next few days to trade on.

“This increase in prices cannot sustain itself,” he predicted. “I think it will come down. But this thing has a mind of its own. Fundamentally, it doesn’t seem like it should be this high. Storage is in good shape. We’re having temperate weather. This rally is all on a big ‘if’ that there will be hurricanes, production will be down and the summer will be warm. That shouldn’t have a driving effect on the market like it has. We’re thinking these are the market’s highs.”

Texas traders actually are expecting some demand to dry up this week with the Comanche Peak nuclear unit one coming back up to full power by the end of the week. “That’s going to affect loads, but it is supposed to get a little warmer so I don’t know who is going to win. The nuke will take 250-300 MMcf/d off the market but it may get to the 90s in Dallas so that could offset any loads we lose,” said a Houston-based marketer. He said Katy was trading 17 cents behind the screen and a penny or two behind the Ship Channel.

PG&E Citygate was still very strong at around $6.20. “There were a few people short and some people trading, but the netbacks are basically the same all around,” said a West Texas marketer. “Transwestern maintenance at La Plata has affected San Juan supply. But it’s really hard to trade right now because all the spreads are pretty tight and are barely covering transportation costs. This is supposed to be a shoulder month and here we have $6 gas.”

©Copyright 2004 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.