Spot prices soared higher across the board again yesterday, with many sources attributing the increases to cash following a rising futures market, producers cutting back a little on supply, and buyers finally entering the market after going short so far this month, expecting prices to fall because of high storage levels.

While temperatures actually rose in most major markets yesterday, spot prices jumped 15-20 cents on average. The West saw the largest increases with gains of about 30-cents or more in the Rockies and at the Southern California Border. Northeastern points were up 15 cents or so. Many Midcontinent and Texas locations were up 20 cents or more. Nighttime temperatures are expected to begin declining particularly in the Midcontinent and Rockies this weekend, but at least one source pointed to changes on the supply end of the equation as having a greater influence on the market right now.

“I’ve heard that some producers have taken this opportunity to begin doing some discretionary work on their drilling rigs. If I was looking at gas as cheap as last week, I would be limiting my production as well,” said one marketer. So far only two independent producers, EOG Resources and Newfield Exploration, have formally announced they would be curtailing production this fall and winter, and their curtailments will only take about 110 MMcf/d off of the market in the Gulf Coast region. However, the recent low prices have given producers an incentive to restrict flows as much as possible without jeopardizing their quarterly production targets.

Many observers had a hard time pointing to any significant source of demand in the market. Most noted the need for cash to converge with futures prices by the end of the month. “Cash is still behind futures in spite of these increases,” noted one trader. “The screen is up based on technicals and the reaction to the weekly storage injection. Basis to the Northeast is pretty weak, so that leads me to believe that gas is being consumed down in the producing region, and market demand is declining due to the warmer weather. It’s really hard to explain why prices are so strong right now,” he added.

He noted that Columbia pool gas had a basis of 8 cents, which was down from 12 cents on Wednesday and 21 cents on Tuesday. “It has gotten smashed. All the cold weather is gone and the region has warmed up real nicely.”

Despite the sharply higher averages, toward the end of trading there was a steep decline in cash prices at many locations, indicating to some there could be further weakness entering the weekend.

“There was no real demand in Chicago,” said a marketer. “Most people are fairly full in storage, but there are quite a few bigger players short who have been running it up. Chicago was up near $2.46, but then fell off to $2.37.”

“I was buying Chicago last week at $1.95,” noted an aggregator. “Weather here is benign. It’s all technical related. A lot of people apparently went into the month short. Everyone looked at all the gas in storage and expected there soon would be plenty of gas with no place to go, but that perception has kind of back-fired on them. I think people generally are still pretty bearish nonetheless. Maybe not as early as tomorrow, but going into the weekend with no weather and plenty of gas in storage, the cash market is bound to pull back down.”

He noted the spreads between Chicago and TCo pool (Columbia) have been crushed this week, dropping from 30 cents to only about a dime yesterday. “Chicago got very strong relative to some of the earlier spreads,” he said. “Today Michigan traded right with TCo and Chicago was probably was just a dime discount to the Dominion Appalachian pool. The normal spread for this time of year is 15-20 cents. I can’t bring gas from Chicago into Ohio at these tight spreads.”

The soaring prices in the West were equally difficult to explain. Power prices fell $10 or so, despite several major nuclear units being take out of service for unexpected maintenance on Wednesday. “We just bought power today because power prices fell, while gas prices rose sharply,” said one large southwestern utility buyer. “Power fell to $26. Gas jumped to $2.12 in the San Juan. It got to be too expensive.”

He noted the Palo Verde outage drove power prices up on Wednesday, but they quickly declined on Thursday. He expects gas to do the same entering the weekend. “If power stays in this $26 area for peak and $20 or less for off-peak, it’s going to keep gas depressed in the San Juan. We’ll stop buying it; I can assure you. Gas will come down. It was up because of power demand, but there’s no more hot weather here, so gas prices will come down this weekend.”

Cool weather in the Rockies and demand from the Midcontinent and Midwest drove up Rockies prices more than 35 cents at some points, according to another marketer. “It’s cold in the Rockies, and there’s strong demand going back to Waha and the Midcontinent. Balance of the month prices are up from yesterday to $2.26-30 at SoCal border, $2 in the Rockies and just under $2.10 in the San Juan, up from less than $2 yesterday,” he said.

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