Cash natural gas prices vaulted 24 cents higher overall on Monday on supportive weather forecasts in several key market areas. Just as the market on Friday priced in the double-digit futures loss on Thursday, Monday’s trading was faced with the task of acknowledging the screen’s 12-cent jump Friday. The Mid-Atlantic region posted gains of close to 40 cents, but Southern California, Gulf, Midcontinent and Rockies points all enjoyed exuberant pricing. At the close of futures trading, June had risen 3.5 cents to $4.090, and July was up 3.8 cents to $4.141. June crude oil added 69 cents to $96.71/bbl.

Market bulls appeared enthused with U.S. Department of Energy (DOE) approval of Freeport LNG’s application to export liquefied natural gas (LNG) from the Quintana Island, TX facility, but physical traders Monday had to also deal with well-above-normal temperature forecasts at major market centers.

AccuWeather.com expected New York City temperatures to rise from 77 degrees on Monday to 80 on Tuesday, then reach 84 Wednesday, 12 degrees above the normal high. Washington, DC’s Monday high of 80 was predicted to rise to 87 Tuesday and 88 Wednesday, also well ahead of the 76 seasonal norm.

“Rising temperatures and humidity across the Mid-Atlantic will have it feeling like the end of June,” said AccuWeather.com meteorologist.Courtney Spamer. “After a day of temperatures near 80 degrees on Monday, the humidity will be kicking up on Tuesday, making it feel sticky across the area. Temperatures will be reaching the middle to upper 80s across Washington, DC, Baltimore and Philadelphia Tuesday and the lower 80s around New York City. These figures will be roughly 10 degrees above average for this time in May.”

Gas deliveries Tuesday into Dominion rose 26 cents to $4.15, and packages at Tetco M-3 gained about 34 cents to $4.28. Gas bound for New York City on Transco Zone 6 added 39 cents to $4.35.

AccuWeather.com predicted that Chicago’s high of 89 Monday would ease to 82 on Tuesday and fall to 76 on Wednesday, still ahead of the normal seasonal high of 71. Detroit’s Monday high of 87 was forecast to ease to 83 Tuesday and to 79 on Wednesday, also smartly above the normal high of 71.

Great Lakes points also posted strong gains. Gas into Chicago Citygate rose 25 cents to $4.19, and Tuesday deliveries on Alliance gained 31 cents to $4.23. Michcon gas was quoted at $4.39, up 21 cents, and Consumers next-day deliveries came in at $4.44, up 22 cents. Dawn gas changed hands at $4.47, up 19 cents.

Southern California points were strong. SoCal Citygate quotes for Tuesday deliveries were seen at $4.35, up 34 cents, while deliveries to SoCal Border points rose to 33 cents to $4.16. El Paso S Mainline was quoted at $4.23, up 35 cents.

“I was just talking about the LNG export facility with a customer, and we noted that the announcement came out at 12:15 EDT [Friday] and the market rallied 12 cents, and now we come in [Monday], and we are right back off at the end of the day,” said a New York floor trader. “We settled below $4.10, so we might get a little push and settle below $4.00 [Tuesday]. We may get some pressure overnight and come in about $4.05” Tuesday “and test below $4 in the next day or two.”

Addison Armstrong of Tradition Energy saw “the market extend Friday’s strong rally into a second day, amidst fresh short-covering and strengthening seasonal demand fundamentals. Gas prices surged more than 3% on Friday as the market catapulted back above the key $4.00 mark on the back of weekend short-covering after the DOE approved the second LNG facility, Freeport LNG, to be allowed to ship LNG to countries that do not have a free trade agreement with the U.S.

“Weather forecasts have been revised warmer to open the week, with above-normal temperatures now expected across the East in the next five days, followed by normal to above normal temps in Texas and the Midwest in the six-10 day forecast, while the eastern third of the country is expected to see below-normal temperatures during that time period. Forecasts for the beginning part of June have shifted warmer and are now indicating above-normal temperatures throughout much of the eastern half of the country.”

Some had a difficult time reconciling the near-term price impact from the Freeport LNG project, which isn’t destined to start up for five years. Said Tim Evans of Citi Futures Perspective, “some wondered if the reported DOE approval of Freeport LNG’s export proposal sparked the buying, although our research suggests they still need FERC approval and don’t plan to commit to the associated $10 billion investment until 4Q2013. Then, after an estimated 48 months of construction work, they would begin exporting gas in 2018. In our view, extra gas demand in 2018 is a poor support for the June 2013 delivery contract.”

From a risk management perspective, DEVO Capital Management President Mike DeVooght suggested that trading accounts hold a short June futures position at $4.35 and risk 25 cents on the trade. End-users are counseled to stand aside, and producers and those with exposure to lower prices should hold on to a short July-October strip established earlier at $3.75-3.95 and also a short November-March strip at $4.50-4.60.

According to DeVooght, higher natural gas prices are a long-term endeavor. “It seems that a lot of speculative money has gotten very bullish over the past couple months. We feel you can make a case that the gas market is in the healing process, but this process is going to take years, not months. We will very likely see manufacturing demand uptick because of the cheapness of natural gas in the U.S., and we will start to see an increase in exports, but a lot of this increase in demand is down the road and there is plenty of capacity that can come to market in a very short period of time. On a trading basis, we will hold short positions and look for the market to work lower over the next few weeks.”

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