The continuing crushing heat through the Southwest Tuesday pushed several Gulf Coast points into $10.00 territory normally reserved for the Northeast, while price increases in other areas of the country could be termed relatively moderate, matching their weather. But the overall momentum continued up, spurred by continuing futures market gains and growing concern about potential offshore shut-ins in the near future.

Along the Gulf Coast price hikes even El Paso North Baja/Ehrenberg got into the quadruple-digit price act with a peak of an even $10.00, as the pipeline declared a Strained Operating Condition centered on overtakes by customers in the Arizona delivery area (see Transportation Notes).

Virtually all western points saw upticks of about half a dollar or greater. Although it did not issue an OFO, PG&E projected that its linepack levels would be just above minimum target levels through Friday. Other signs of supply tightness in the West included Kern River reporting normal linepack in all segments and Westcoast setting its imbalance tolerances at 15% pack and 5% draft; both pipes had mostly been struggling with high linepack levels since early spring until recently.

In Texas hot temperatures Tuesday had all power generation running and on-peak power prices well into triple digits, NGI’s Power Market Today (PMT) reported.

“If it will run, swim, or fly we’ve got it running,” said a Waco generator. He said that temperatures in his load area were at 98, and it was forecast to be hot for the next 10 days. Prices aren’t as bad as they might seem. Earlier they were at $100, and that sounds high, but with $10 natural gas and a 10 heat-rate unit, that’s about right.”

The Electric Reliability Council of Texas reported on-peak power in the North Zone spiked to $598 MWh in the early afternoon, but later in the afternoon subsided to a relative low of $295. “When that happens everyone is showing peak demand, and the roster of generation is thin. A lot of those spikes only last for 15 minutes or so,” he pointed out.

Calling Wednesday’s natural gas price direction was rather iffy, since power generation demand driven by hot temperatures is tending to slack off a bit in most areas outside the desert Southwest and western portions of the South. The screen added to the haze of near-term price direction by starting off strongly but selling off into negative territory around mid-morning before rebounding in the afternoon to an eventual daily gain of 11.9 cents. Increases by crude oil and heating oil futures were minuscule, while Nymex’s unleaded gasoline contract fell a penny in advance of Wednesday morning’s petroleum stockpile reports.

As anticipated, Tropical Storm Jose never posed even a remote threat to Gulf of Mexico production. It reverted to a tropical depression again Tuesday while bringing heavy rains to central Mexico.

However, the same couldn’t be said for the new Tropical Depression Twelve (TD 12). TD 12 was nearing tropical storm strength (winds of 35 mph) as it moved toward the northwest at nearly 8 mph about 175 miles southeast of Nassau, Bahamas as of 5 p.m. EDT Tuesday, the National Hurricane Center said. The projected tracking of potential Tropical Storm Katrina had it passing over the southern end of Florida by Friday and approaching the Mobile Bay, AL area Sunday.

It was “more of the same” in the cash market Tuesday, a Northeast marketer said in referring to a second day of mostly major gains, but he added that prices “came off hard” near the end. Most cash trading was finished by the time Nymex cratered at mid-morning, though. The Northeast is actually experiencing temperatures below seasonal norms, the marketer continued. “That was a nasty Nymex sell-off in the middle of the session,” he said, but he wasn’t sure what brought natural gas futures back into positive territory later, although it might have been following oil’s minimal strength.

The marketer said he thinks it’s “only a matter of time” before the screen breaks through $10. But in a tempering note, he commented that Nymex speculators “can’t just keep taking and taking from the market without ever giving anything back.”

Since she planned to be traveling early next week, a Gulf Coast producer was trying to take care of some early September business Tuesday. She reported succeeding in that endeavor with indexed deals, “which aren’t too hard to do early.” She expected to complete her September trading by the weekend, and said prices are looking very strong for next month because of the screen’s run-up during August and the huge premiums that daily spot prices are currently commanding over August first-of-month indexes.

Saying the current energy market “is just awful,” the producer reported hearing on a talk radio show Tuesday morning that many Dallas-area school districts are cutting back or eliminating extracurricular activities because they can’t afford gasoline prices.

Enercast analyst Agbeli Ameko is predicting a storage injection of 69 Bcf to be reported for the week ending Aug. 19, which he said would bring total inventory to around 2,584 Bcf. “Average injections are expected this week as strength in pipeline receipts reflect healthy production, offsetting the warmer than average temperatures across the nation during this period,” he went on. “Impact on natural gas prices from this week’s storage report is expected to drag on current highs [prices], similar to last week’s reaction. Also dragging on short-term rates is the fizzle of Tropical Depression Jose.”

Citigroup’s Kyle Cooper said his final estimation for the upcoming EIA report calls for a build of 53-63 Bcf.

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