Powered by uncertainty on where Hurricane Katrina's second landfall will be, September natural gas futures on Friday made another stab at the psychological $10 level. Ahead of its expiration on Monday, the contract matched Wednesday's $10.02 high, but once again failed to test the all-time regular session high of $10.10.
Despite trading within a 35-cent range on the day, most of which was to the upside, September natural gas ended up settling at $9.792, up 2.2 cents on the day and 68.1 cents higher than the previous Friday's $9.111 close. Poised to take over as prompt month on Tuesday, October natural gas finished the week at $9.806, down 2.1 cents from Thursday.
"Hurricane Katrina was definitely a market mover Friday," said Steve Blair of Rafferty Technical Research in New York. "There is no doubt traders took notice as most weather services such as EarthSat and the National Hurricane Center are now putting Katrina's track a little more to the west in the Gulf, where the storm could potentially affect some of the eastern Gulf production areas."
In addition, Blair said the petroleum sector also lent support to the natural gas futures market, although he noted that he was very surprised that the liquids sold off so hard at the end of the session. "I would just pass that off as the lightening up of length in the market," he said. Despite venturing as high as $67.95/bbl, October crude ended up settling at $66.13, down $1.36. September unleaded gasoline and September heating oil also finished lower Friday. Gasoline settled at $1.9269/gallon, down 3.68 cents, while heating oil finished at $1.8366/gallon, down 3.29 cents on the day.
"What was interesting in natural gas was after it poked its head above that $10 level on Friday, it fell off pretty quickly," Blair said. With expiration for the September contract coming on Monday, Blair said he would assume there were a lot of traders squaring their books on Friday. "I'd venture to say there was probably a decent amount of open interest and I think maybe one of the reasons that the market got up there -- and this is an assumption -- is that the local traders may have been trying to get the market to close above the $10 level to trigger off those options."
Blair said the weekend's Access trading session for natural gas should be interesting. "We will see on Sunday night when Access opens what this market does, because at that point we will already know what this storm has done," he said. "If this storm takes an even more westerly track and affects more production than they anticipate now, then the market will take off to the upside Sunday night. However, if the storm track stays where it is or takes a more easterly track, then this market will come off Sunday night. I don't think it is going to come off to sub-$9, but I definitely think you will see a sell-off."
Hurricane Katrina made landfall in southern Florida Thursday evening, and it now appears headed toward the western edge of the Florida Panhandle. As of late Friday afternoon, the storm appeared to be taking the more westerly track, which would threaten eastern Gulf production. Shut-ins were minimal Friday afternoon (see related story). The storm was classified as a Category Two hurricane, but was expected to increase to a Category Three sometime Friday night or Saturday morning. The weather service also is tracking several weather centers in the Caribbean and the Atlantic that appear to have development possibilities.
Natural gas bulls fondly remember the experience of last season. Hurricane Ivan caused extensive rig and pipeline damage that reduced supplies by more than 172 Bcf. This year, Hurricanes Emily, Dennis and Cindy and Tropical Storm Arlene cut a combined total of at least 29 Bcf of gas.
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