After a string of mostly declines last week, the natural gas cash market rebounded on Tuesday as some early summer heat resulted in most locations recording increases from a few pennies to a dime.

While most points across the country only picked up a few cents, averages in the East showed the most strength. Most eastern points picked up more than a nickel and Transco Zone 6 NY boosted its average by 14 cents. While increases were dominant, there were a few declines of a couple of cents sprinkled in around the country.

As warmer temperatures began showing up in the middle of the country, Midcontinent points saw mostly increases with a few spots remaining flat.

“Seems like the heat is on, so some small utilities are buying gas, which is creating some cash strength,” said a Midwest marketer. “Also, when intraday trading starts happening, that creates a little bit of upward pressure for the next day, so Wednesday should be interesting.”

As for June bidweek, the marketer told NGI it was beginning quieter than last month for them. “Bidweek started kind of slow for us. We’re did mostly fixed-price trading,” he said. “We sold some in Midcontinent at $4.835 and it was trading at $4.770, so it has kind of jumped up too. It’s a much slower start to bidweek than last month. That said, there are a lot of index deals happening early. Every month people are scared if you don’t sell the gas you might end up getting index minus 20 like last month. So a lot of the players were selling index, because if you wait a day you can end up with a lot of loss. There is a lot of uncertainty with where prices are going to end up.”

After temporarily ducking below $4 on Monday for the first time in more than two weeks, the June natural gas futures contract repeated the action on Tuesday but failed to close below the psychological support number. June futures, which expire Wednesday, closed Tuesday’s regular session at $4.051, up 3.4 cents (see related story).

Credit Suisse analysts Edward Morse and Teri Viswanath noted last Friday that the supply/demand balance could tighten by next year. “With the front of the curve anchored at $4, which we deem fair value, our attention has turned to the deferred strip,” they wrote in a research note. “While the recent spate of financing announcements might likely compensate for the lack of producer hedges in place for 2011, we are growing increasingly concerned that supply/demand balances will likely be tighter during this time frame, justifying a price at or above current market levels.”

Taking a look at Thursday’s natural gas storage report for the week ending May 21, Viswanath said Monday she expects the Energy Information Administration to report a 99 Bcf storage injection. “Our estimate reflects nearly a 1 Bcf/d tighter market than last year based on higher demand from the early transition to the cooling season in the South,” she said.

“The combination of a supportive cash market and the early build in heat suggests to us that July 2010 will likely move higher,” Viswanath said. “We expect the slowdown in weekly storage injections, as storage begins to compete with electric power demand, to likely be viewed as constructive for natural gas prices. We, therefore, recommend that investors consider buying the July 2010 contract around current levels of $4.05 and remain in this trade until the contract moves back closer to $4.20, which we think is likely over the next few weeks.”

Stephen Smith of Stephen Smith Energy Associates on Tuesday upped his original 96 Bcf storage build expectation to 100 Bcf. The fresh storage data Thursday will be compared to last year’s 105 Bcf build for the week and the five-year average build of 94 Bcf.

James Crandell, an analyst with Barclays Capital, said Tuesday that the natural gas markets this week will have no lack of news to sort through. “On a fundamental basis, the market is digesting higher drilling activity against a hot start to the cooling season under way in the Midwest and moving to the Northeast,” he said. “Last Friday’s rig count report showed a net addition of 18 rigs, to 969 gas-directed rigs. On Friday of this week, the EIA is set to release the EIA-914 report, which will provide a fresh perspective on US domestic natural gas production, in addition to the Natural Gas Monthly supply and demand estimates scheduled to come out on the same day.”

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