After Quiet Tuesday, Storm Fears Boost Futures Overnight

Choppy trading continued in the natural gas pit yesterday as traders deposited prices lower, after failing to break through overhead resistance on the open. However, after watching prices rumble mostly sideways for the better part of the afternoon, bulls were once again on the offensive Tuesday evening in reaction to reports that a storm was forming in the western Caribbean Sea.

After slipping 0.3 cents to close the regular session at $5.008, the prompt October contract was up 8.1 cents to $5.089 early in last night's Access trading session. Meanwhile, crude oil futures, which have been a rally point lately for gas bulls, were off almost a dollar to $34.15 during the same period yesterday.

"We would be a lot lower if it weren't for the storm in the Caribbean," said Ed Kennedy of Miami-based Pioneer Futures. "Crude is off and the weather is mild, but the traders are caught like a deer in the headlights while there is a potential for this storm to develop."

As of Tuesday evening, the National Hurricane Center was tracking a broad area of low pressure located in the western Caribbean Sea. Upper level winds have become favorable for further development, prompting the Air Force to send a reconnaissance aircraft to investigate the system late yesterday.

While it was still too early to tell whether this system will have an impact on gas assets in the Gulf of Mexico, it was apparent that traders were not taking any chances last night. The development of tropical systems in the Gulf and the Caribbean have already produced stunning knee-jerk reactions in futures prices this hurricane season, most notably on Monday, Aug. 21 when the market jumped more than 31 cents on the news Debby had reached tropical storm status in the eastern Caribbean.

However, fresh storm news will not be the only thing traders need to be on the look-out for Wednesday. Also anticipated is the release of fresh storage data from the American Gas Association. Market expectations are centered on a 50-60 Bcf injection, which, if realized, will fall dramatically short of both last year's 81 Bcf refill and the five-year average build of 79 Bcf. Over the past four weeks the market has only injected an average of 50 Bcf, 18 Bcf less than the average injection for this time over the last five years.

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