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$9.984 Futures Settle Sets All-Time Record for Prompt Month

Prompt month natural gas futures pushed through the psychological $10 level Wednesday for the first time in regular session trading since Feb. 25, 2003 with a trade at $10.02, wiping out September 2005's previous prompt month high of $9.91 in the process. September natural gas went on to settle 30.1 cents higher on the day at $9.984, the highest prompt month settle for natural gas on the books.

The push in natural gas was attributed primarily to the development of Tropical Storm Katrina, which was "getting better organized" over the central Bahamas on Wednesday, prompting storm watches and warnings for Florida, according to the National Hurricane Center in Miami, FL. The threat to Florida also put Gulf production on the potential hot seat, and traders took notice (see related story).

Natural gas futures on Wednesday were in rarefied air. The settle topped the previous high on Dec. 27, 2000 of $9.978. The highest a prompt month has ever traded in a regular session still stands at $10.10, which was set in Dec. 2000 and again in Feb. 2003.

Trading on the day proved to be record setting in crude as well, as prompt month crude settled at an all time high. October crude jumped $1.61 Wednesday to settle at $67.32/bbl. September unleaded gasoline and September heating oil also finished higher on the day. Gasoline settled 6.78 cents higher at $1.9258/gallon, while heating oil increased 4.6 cents to close at $1.8654/gallon.

The petroleum complex was forced to digest what many called another mixed inventory report, which showed gasoline inventories fell for the eighth consecutive week while crude inventories increased more than expected.

"Prompt month natural gas definitely set a record with the settle, there's no doubt about that," said Brad Florer, a broker with ICAP Energy. "We settled right up against $10 and the resistance level at $10.10, which is a big level that was basically breached on Access Wednesday morning. Beyond that, $10.50 is the next target followed by $11.80, which I believe is the all time high print on Access."

Florer said that even though natural gas futures are basically off the chart, he believes the rally is not finished just yet. "I think there is definitely further room on the upside because we have still not seen the big monster spike rally that usually signals the end of these things," he said. "Even though we are trading $10 here, I think people are still afraid to sell it. Nobody has a good solid handle on what the ceiling should be, so no one wants to be the first guy to try to pick it."

Florer said Katrina was definitely the motivating factor Wednesday, although he noted that there are also a number of other factors that play into the rise. "There are too many factors in the market that are potentially explosively bullish, which put traders in the position of not wanting to be short unless they absolutely have to be. The list is long on the things that can take this market up quickly. It keeps the sellers out so when the buyers come in, it is going to go up."

A Washington DC-based broker also pointed to Katrina as reason for the jump Wednesday, adding that the hype seems premature. "This is really interesting because it only became a storm on Wednesday and it is still not clear that it will even make it into the Gulf as a strong storm," he said. "All of this hype and level of push over the storm seems a little overdone at this point."

The broker noted that he's not too sure this push has much left in it. "Over the past week, it still has the feel that these pushes higher are labored," he said. "It seems to be having a harder time getting up and staying there. I really think this is showing us that the momentum is flagging a little bit, but you would have to be brave to step in front of this thing and sell it because it could push right against you another 15-20 cents in a heartbeat.

"The rest of this week should be interesting because we have the natural gas storage number on Thursday and we are not supposed to know any more about the storm until Friday, so we will have to wait and see how the market reacts."

Looking towards the Energy Information Administration's natural gas storage report for the week ended Aug. 19, the general consensus in the industry is for an injection around 56 Bcf. The ICAP-Nymex storage options auction on Wednesday revealed a consensus forecast of a 59 Bcf injection.

The number revealed Thursday morning at 10:30 a.m. EDT will be compared to last year's 83 Bcf injection and the five-year average build of 64 Bcf.

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