Cash prices tumbled 10-15 cents at nearly all locations across the country Wednesday in response to mild weather and early futures market weakness, but few observers seemed ready to call it a sign of an upcoming market reversal. In fact, the crude oil and gas futures markets ended the day even higher, leaving many in disbelief. June gas ended up 4.1 cents to $6.310, while June oil hit a new high for the contract of $39.30.

“For some the market is indeed laughable — Hee Haw — as crude eyes $40 and ‘natgas’ trades, at least for the time being, firmly above $6,” said Jay Levine, a futures broker with Advest Inc. “I won’t begin to make excuses for this market action — no point — but the market is fixated on fear, uncertainty and trading under a worst-case — panicked — scenario. How else to explain a market that has 400 Bcf more [natural gas] in storage than last year; and if there are concerns about gasoline inventories, what do you call a 4 MB build based on DOE stats today? I guess you call it not enough.

“The market will remain in panic mode until it isn’t,” Levine concluded. “Then, it will be length all rushing out the door at the same time.”

Storage could be a trigger mechanism on Thursday, although it seems unlikely. Steady storage increases are expected. Natural gas storage levels are forecast to rise by about 70 to 80 Bcf, compared to 78 Bcf in last week’s report for the week ending April 23, last year’s 82 Bcf injection and the 60 Bcf average injection for the same week over the last five years.

Thomas Driscoll of Lehman Brothers said he’s expecting an 80 build. Consultants at Global Insight are projecting a 75 Bcf injection, while Tim Evans of IFR Pegasus is predicting a 75-85 Bcf injection. Evans said it may have temporary bearish implications, but storage injections over the next few months are unlikely to match last year’s rapid pace.

“Going forward, we think more bullish comparisons are likely, especially relative to the data from last year, which showed above average injections from May right through what proved to be a cooler than normal summer,” said Evans. “We see enough heat in the short-term outlook as well as the long-range view for the summer to spark a further uptrend to reflect this bullish potential.”

While few seem interested in paying more than $6 for gas that is going into storage, the forward market is providing attractive incentives to do so, noted several sources.

“There’s plenty of gas getting injected everywhere right now because the spreads say to inject,” noted a Houston-based marketer. “That’s a big part of the demand right now. If you can hedge it against a summer or winter months, it makes sense to do it. The June contract versus the July contract gives you 10 cents. That’s a good spread. It tells you everyone is pretty bullish. If you can store gas in June for very little cost and bring it out in July, there’s real value there. We think there will be some heat this summer and demand will be high.”

Temperatures were on the rise in many locations Wednesday with above normal readings continuing throughout the West and slightly below normal temperatures throughout the East. However, over the next few days, the weather looks like it will return to more normal readings across the board. The National Weather Service predicts heating degree days will average 17% lower this week compared to last week. Cooling degree-days are gradually becoming more influential and are well above normal in the West this week, but the California heat wave has finally broken.

A Florida utility said loads were pretty moderate Wednesday despite warnings of a possible overage alert by Florida Gas Transmission. “Power loads are pretty minimal. It’s in the mid-70s and will get into the 80s today but that’s to be expected.”

Weather in Chicago is mild, but could get close to 80 on Thursday. “That probably will be a one-day blip above normal,” said a regional marketer.

“I think there were also some people who went into this month thinking prices were going to come off since they had settled close to $6. I think there were a lot of people short in the day market to be honest with you. Chicago is trading at a slight premium to the Hub today.”

The National Weather Service’s six- to 10-day forecast for May 11-15 shows normal temperatures in a band from southern California to Chicago to New England. Below normal temperatures are expected in the Pacific Northwest and northern Rockies and above normal temperatures are expected from New Mexico and the Midcontinent east over the southern two-thirds of the nation.

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