Whether you dismissed it as “storm hype” or considered it a justifiable reason for concern that hurricane-devastated Gulf Coast supplies faced the possibility of another major hit late this week, one thing was for certain. The Monday morning formation of Tropical Storm Wilma in the western Caribbean Sea was the primary reason for cash market spikes Monday that were around or exceeded a dollar in most cases.

Except for some high temperatures that are able to support a little air conditioning load from the western Gulf Coast and lower Midcontinent through the desert Southwest, and conditions cold enough to prompt a modicum of heating load north of the border in Canada, weather is pretty much a nonevent currently for the gas market. Most market areas are experiencing typical mid-October weather that exemplifies the usual moderate bearishness of a shoulder month, one source noted.

However, he said it’s a safe bet that Monday’s 66.8-cent jump by the November natural gas screen, coupled with huge gains in the rest of Nymex’s energy complex, will sustain further cash run-ups Tuesday. The fact that November gas settled at $13.887, little more than a penny off its daily high, contributed to the overall bullish mood, he said.

In claiming the 21st and last of the names originally scheduled for 2005 Atlantic hurricanes (the National Hurricane Service will use the Greek alphabet if necessary for upcoming storms), Wilma tied a record set only once before in 1933 over 154 years of record keeping, according to the Associated Press.

But rather than its record status, it was Wilma’s projected path of barely grazing the tip of Mexico’s Yucatan Peninsula before emerging into the southern Gulf of Mexico early in the weekend with its sights seemingly set for the hurricane-weary Louisiana coast that caused the explosion of prices Monday. However, a trader cautioned that there is plenty of time and room for course deviations along the way.

Gulf of Mexico (GOM) production continued a slow recovery from Katrina/Rita shut-ins. Minerals Management Service said it counted 5,497.96 MMcf/d as remaining offline in the Gulf Monday, down a little less than 150 MMcf/d from Friday’s tally (see related story).

Despite more than half of normal GOM production still being shut in, there are signs that some of the massive demand destruction caused by the two hurricanes is also being canceled to some extent. Valero Energy, the largest U.S. refiner, said Monday it expects its refinery in Port Arthur, TX to be back at full 250,000 bbl/d operations by the end of the week. It had already reached the 200,000 bbl/d level Monday morning, according to news reports. This follows the return of several other Gulf Coast industrial facilities, along with restoration of power to electric utility customers, in the past week or so.

However, in an offsetting note, the 270,000 bb/d Citgo-Lyondell refinery on the Houston Ship Channel was shut down Sunday after a fire broke out in the plant’s fluid catalytic cracking unit. Reuters news service said a source estimated the facility would be down four to six weeks.

To a Northeast marketer, storm hype “pretty much sums up” the driving force behind Monday’s cash spikes, although he expects further major gains Tuesday following the strength in energy futures Monday. It’s cool in the Northeast market area now, he said, but not cold enough yet to prompt any substantive heating load. He saw a basis range of 40-65 cents from the Gulf Coast to citygates, which was enough to cover transport variable costs.

“There were plenty of buyers and sellers” to match up with each other Monday, which made for plenty of liquidity and fairly tight trading ranges, the marketer continued. For him, that was “a welcome change” from the volatility of the past two weeks when prices were all over the place, he said.

An LDC buyer in the South found the most interesting thing about the market in general was the fact that Chicago citygates continue to trade at substantial discounts to Henry Hub. “That is a good thing for us because we have some options about where we pull our supply,” he said. If the gas comes from the Gulf it can be delivered directly off ANR, Trunkline or TGT, but if it is delivered to Chicago on the way, “we pay nothing for fuel because it is considered a backhaul,” he said.

In terms of storage, his company is nearly full for the winter. This year it may be a particularly difficult decision of how much and how soon storage gas should be pulled, the buyer went on.” We will certainly be mindful of making it through the winter,” he said.

In addition to operational concerns, LDCs also need to be mindful of the economics of storage, he said. “We are also looking very closely at the 2006 summer strip. That is the replacement cost of our storage gas. If that cost is less than the spot price, then it may be prudent for us to pull on our storage and buy futures contracts.”

Citigroup analyst Kyle Cooper made an initial estimation of a storage injection from the high 40s to low 50s Bcf to be reported for the week ending Oct. 17.

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