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Some Points Rally, But Most Soften Further

Although most of the cash market remained in softening mode Thursday by recording losses ranging from a couple of pennies to more than 80 cents, several areas had points in the mix that were flat to as much as nearly a quarter higher. Sources suggested that the scattered rebounds and eventual screen strength were tied to growing perceptions that Hurricane Katrina-related Gulf of Mexico (GOM) shut-ins could rival those of 2004's Hurricane Ivan for longevity.

With Florida Gas Transmission having lifted a lengthy Overage Alert Day notice earlier this week and northern sections of its market area receiving cooling rains from the newly minted Hurricane Ophelia, the pipeline's producing-area zones took some of Thursday's largest price hits, especially in Zone 3, which was highly vulnerable to offshore outages in the Eastern Gulf. However, FGT prices still saw the Gulf Coast's highest averages.

Outside the torrid desert Southwest, weather load for gas remains marginal with temperatures mostly ranging from moderately warm to slightly cool. Weekend fronts will keep a cap on temperatures in the Northeast and Midwest.

The Energy Information Administration estimated that despite a 6 Bcf withdrawal in the Producing Region, overall storage inventories grew by 36 Bcf during the week ending Sept. 2. The volume was near the high end of prior expectations and was even more remarkable in light of reports last week that heavy use of storage was being made to make up for the massive cuts in offshore supplies caused by Katrina. Following an initially bearish reaction to the storage report, the screen rallied in the afternoon to an eventual daily gain of 14.6 cents after a government agency indicated that restoration of shut-in offshore production had slowed to a trickle.

After having made major strides in lowering GOM shut-ins over the holiday weekend, offshore producers have seen their recovery efforts come to a near-stall this week. Minerals Management Service (MMS) said that with 56 companies reporting to it by 11:30 a.m. CDT, natural gas outages stood at 4,020.46 MMcf/d Thursday -- a reduction of only about 16 MMcf/d from the day before. The MMS tally of evacuated platforms and mobile drilling rigs was 125 and five, respectively (see related story).

Tropical Storm Ophelia became the seventh hurricane of the 2005 Atlantic season, but the good news was that the stationary (as of Thursday afternoon) storm was expected to begin a slow northeastward drift away from the Florida coastline. At 5 p.m. EDT Ophelia's center was about 70 miles east-northeast of Cape Canaveral, FL.

Hurricanes Maria and Nate were still around Thursday, but neither had any significance to gas markets since they remained well out at sea and moving farther from the East Coast.

Opinions on Friday's market direction were mixed. A Gulf Coast producer thought prices would come off a little due to the weekend reduction of industrial demand and mostly moderate weather in northern market areas, but added that the screen's rally Thursday afternoon should keep losses minimal. Henry Hub cash, down a little more than a dime, traded well back of the screen, he noted.

The producer reported getting fewer supply orders from power generators in Florida as that state cools off with Ophelia. Referring to the MMS report of Katrina-related shut-ins not going down very quickly, he said he hopes the market doesn't get a repeat of Ivan's long-lasting outages.

A Houston-based marketer said that with the afternoon rebound in futures, he looks for prices to rise a bit Friday, "but it depends on the market area." For instance, Midwest deliveries may soften with a cool front moving into the region over the weekend, he said. Noting the high volatility of a dollar-plus trading range at the Chicago citygate, the marketer said he was fortunate to secure several packages in the low to mid $9.90s after seeing prices at $10.30 or higher early on.

Remarking on the afternoon screen rally, the marketer said maybe the Nymex traders were getting a better feel for how much Katrina impact is hanging around. Recent slow progress in restoring GOM production is starting to suggest a drawn-out shortfall similar to what Ivan caused, he added. "Most of the quickly returnable stuff seems to be already back," he said, and it will take a while to get the rest online.

The Weather 2000 consulting firm had an interesting thought: With Ophelia now claimed, only six names remain on the current 2005 Atlantic naming list in a hurricane season that is fulfilling forecasts of greater than normal activity. "So what happens if we have a tropical storm after Wilma is utilized, as we have never before in history gone through all the names in the assigned alphabet?" it asked. The prevailing consensus among government officials and scientists, Weather 2000 said, is that the Greek alphabet would then be used, yielding names such as Hurricanes Alpha, Beta, Gamma, etc.

The New York City-based company also noted that although there is little discussion of it, an area of disturbed weather in the southwestern GOM should be a subject of some concern. "There is plenty of convection flaring up, we see the signs of a surface low trying to mature, and the waters (largely untouched by tropical storms in 2005) are staggeringly sultry," Weather 2000 said. "While this may turn into a nonevent, the waters are so warm and near to Texas that if something does get going, it could get going real swiftly and already be a stone's throw away from a major Western Gulf port city. Please stay tuned."

In its six-to-10-day outlook for the Sept. 13-17 period, the National Weather Service predicts above normal temperatures almost everywhere east of a line running south from the North Dakota-Minnesota border and then curving slightly southwestward through eastern New Mexico. The only exception in the East is a forecast of normal conditions in the southern half of the Florida peninsula. The agency looks for below normal readings everywhere west of a line running from western North Dakota through Wyoming and Utah into eastern Arizona.

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