Despite some bearish fundamentals gas prices remain strong, but unless some significant winter-like weather shows up in the next 30-45 days the gas market "has the possibility to really sell off meaningfully," the manager of hedge fund Terra Verte Trading LP said last week.

Andy Weathers, who manages a hedge fund that trades natural gas, crude oil and refined products, told attendees at the Texas Electricity Professionals Association (TEPA) second annual conference in Houston that the gas market is getting support from a number of factors. For instance, liquefied natural gas (LNG) imports are down. "Cash, until about a week and a half, two weeks ago, was very strong. And now there's the fear of the upcoming winter," Weathers said.

"The market has rallied about 70 cents in the last couple of weeks, and it appears that it could be supported moving forward in my opinion." But without cold weather it won't last, he said, even though some support seems to be coming from the crude and products markets.

"If crude and products maintain their strength, it's going to be a little bit harder for this market to sell off," Weathers said. "I'm not an advocate of there being a strong correlation between natural gas and crude oil because, in my opinion, there's not a strong correlation. They have decoupled, and they have been that way for a while."

With gas trading lower than refined products, coal is providing the floor for gas markets, for the time being, Weathers said. "Longer term, if we do not get some weather this winter, I believe it will sell off."

If the cold does come, don't count on gas storage to stand up forever. "Last year we did not have a cold January and we still managed to draw a lot of gas out of the ground during the winter season," Weathers observed. "I think we need to be very cognizant of that going forward."

Another conference speaker, Brandon Schwertner of Credit Suisse, offered a bearish view on gas, saying he's "had a hard time over the past month because we've been drug up on what I call 'basket buying' from the fuels sector...

"If we can get crude to calm down in the fourth quarter, [its] driving demand will cease. I think going into next year, absent a brutal winter, I think we very easily could go as low as six bucks next summer gas or even lower," Schwertner said. "So I'm pretty bearish in that sector, and that's purely on supply; storage is full...I can't see any weather anywhere in the country. I think we'll see cash prices significantly weaken. I see a good pullback in natural gas."

Whether it's strong crude prices, power generation demand or weather supporting gas prices, it's not hedge funds that are keeping prices high, Weathers asserted.

"[Hedge funds] provide a great deal of liquidity," he said. "With that there is some volatility that may be generated by the hedge funds, and I think that generally comes through the systems traders...that buy and sell based on some mathematical model...Generally speaking, though, I don't believe that hedge funds are creating higher prices or controlling the market.

"I think something that's contributing more to the higher prices in our markets would be something along the lines of the Goldman Sachs [Commodity] Index or the AIG Index...Those are long-only products, and there's billions of dollars flowing into those products, therefore...they're going to buy somewhere on the curve wherever they can find the best value, and I think that is a much greater contribution to increased prices than any hedge fund..."

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