Buoyed by the previous day’s 30.8-cent spike in July futures and to a lesser degree by continuing hot weather from the western end of the South through inland California, cash prices continued to rise at a large majority of points Tuesday. However, the fact that the latest gains were considerably smaller than Monday’s in most cases and were accompanied by a few fairly significant losses signified that the market was starting to take heed of generally light weather-based load.

One trader said it appeared that buying for storage injections was partially offsetting the decrease of cooling load in northern market areas.

Several points, primarily in the Midcontinent, recorded losses ranging from 2-3 cents to a little more than 40 cents. Otherwise the cash market was flat to nearly 35 cents higher.

The Southwest heat, with highs ranging from the 90s to the 110s, was not only creating plenty of power generation load but also was straining the linepack of El Paso, which declared a Strained Operating Condition due to excess drafting of its system (see Transportation Notes). The Southwest basins again saw relatively strong gains, but despite inland California high temperatures forecast for the 90s and 100s Wednesday, the Southern California border uptick of about 15 cents was more than a dollar less than its $1.27 spike a day earlier.

The Midwest and Northeast are due to see little change in temperatures Wednesday and will remain mild for the most part with peaks mostly in the mid 70s, a considerable change from last week’s heat.

Cooling load is still very much in evidence in the South, but east of Texas it’s mostly subpar for this time of year with highs mostly hovering around the mid 80s. But Florida is an exception in that area. Florida Gas Transmission warned of a potential Overage Alert Day due to 90-degree weather being forecasted in its market area “for the next several days” and lower pipeline linepack. Florida Gas Zone 3 and the Florida citygate responded with a couple of Tuesday’s biggest increases.

The resumption of near-capacity production by Independence Hub in the Gulf of Mexico (see Daily GPI, June 17) appears to be having relatively little bearish impact on Gulf Coast prices so far.

A Texas-based marketer attributed most of the latest cash strength to Monday’s big futures advance, but said his company was “still seeing regular buying” by some Northeast power generators. Not in New England, he clarified, but they are buying in the lower part of the region around New York City.

The marketer said he thinks storage purchases also have something to do with this week’s firmness. It was so hot late last week that some utilities likely either pulled supply out of storage or suspended their injection schedules, he said. Now they’re either replacing what was withdrawn or have resumed injections because weather-based load has receded, he added.

Of course, Texas and the desert Southwest never saw any break from the heat, and cooling load has remained very strong in that area, he said.

A marketer in the Upper Midwest was still puzzled by the continuing climb in most of the market. “It is actually chilly here today,” she said, so it’s hard to understand why prices were up again. There’s absolutely no cooling load left in most of the Midwest, she said, but it’s not cold enough to create anything other than negligible heating load.

The marketer also pointed out that all of the recent flooding in the Midwest “must be causing demand destruction.” But she did see a possible bullish note in the possible residual effect from last week’s below-expectations storage injection report.

The National Weather Service (NWS) predicts above-normal temperatures during the June 20-24 workweek in most of the western U.S. west of a line running southward from the central Dakotas to central Texas. Normal conditions are expected in much of California along with the eastern halves of Oregon and Washington state and the northern end of Idaho, while NWS looks for below-normal readings in a coastal strip of Southern California and in western Oregon and Washington. To the east, the agency predicted below-normal temperatures in all of Louisiana and Mississippi along with coastal Texas and the southeast corner of Arkansas, and also in the eastern Midwest and western Northeast. Above-normal readings are in the forecast for the South Atlantic coast from mid-North Carolina southward, including all of the Florida peninsula.

Stephen Smith of Stephen Smith Energy Associates projects a storage build of 55 Bcf to be reported for the week ending June 13. Citi Futures Perspective analyst Tim Evans looks for injections of 70 Bcf, 90 Bcf and 75 Bcf in the weeks ending June 13, June 29 and June 27, respectively.

©Copyright 2008Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.