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Short-Covering, Bullish Models Lift Prices

Physical natural gas prices for Wednesday delivery followed on the heels of Monday's cash and screen strength and added on average another 9 cents Tuesday. With the exception of a few Marcellus points, all locations posted gains with some deep into double digits. Midwest, eastern and Gulf markets all posted hefty gains. At the close of futures trading, November had jumped 8.7 cents to $3.716 and December had added 8.1 cents to $3.869. November crude oil rose 46 cents to $103.49/bbl.

Analysts searching for clues as to the last two days of advances can't find any weather drivers. "The gains have been somewhat surprising given the fact that developments on the weather front since last Friday have not provided much bullish fodder," said Jim Ritterbusch of Ritterbusch and Associates in closing comments to clients.

"Short term one- to two-week temperature forecasts still look comparatively mild across the eastern half of the U.S. based on models that we view. Additionally, production losses from TS Karen appear modest with no major threats to GOM production infrastructure currently showing up on the horizon. The more likely drivers of higher prices would appear to be a major amount of non-commercial short-covering that is spinning off of increasingly bullish seasonal tendencies that are incorporated within many trading models.

"We've had two very strong days and gotten ourselves close to the September highs. At some point the market is going to move up in its normal seasonal rally. Could this be the beginning of it? Possibly," said David Thompson, principal with Washington, DC-based Powerhouse LLC, a trading and risk management firm.

"Any time from late September through October is the time we see that advance begin, and this could be it. The talk from other analysts is that they still expect, absent a cold shift coming in, robust injections for the next two periods. These rallies probably don't get to hit full throttle, but it's always the case that the rallies don't start when you think they should."

A Great Lakes marketer is not buying with prices moving higher than his company's October index. "We are thinking prices will come down so we are holding back," said a Michigan buyer. "We don't have that much more to get, and these prices put us above our index on Consumers and Michcon."

Next-day quotes on Alliance rose by 9 cents to $3.75, and deliveries to the Chicago Citygates for Wednesday came in at $3.73, up 9 cents as well. Gas on Michcon changed hands at $3.82, 11 cents higher, and on Consumers gas was seen at $3.82, up 7 cents. At Dawn, gas for Wednesday was quoted at $4.01, up 11 cents.

Eastern prices made double-digit gains. Gas on Dominion rose by 14 cents to $3.41, and on Tetco M-3 next-day packages were seen at $3.60, higher by 9 cents. Gas headed for New York City on Transco Zone 6 gained 6 cents to $3.65.

Marcellus points didn't share in the exuberance of other market centers. Transco-Leidy deliveries were flat at $2.18, and gas on Tennessee Zone 4 Marcellus slipped a penny to $2.07.

Gulf points were firm. On ANR SE, Wednesday parcels added 9 cents to $3.63, and at the Henry Hub Wednesday gas changed hands at $3.71, up 10 cents. Deliveries on Tennessee 500 L rose by 8 cents to $3.68, and on Columbia Gulf Mainline gas added a dime to $3.66.

In spite of stout gains Monday, Addison Armstrong of Tradition Energy said, "with the official start of winter still a little more than two months away, near-record production levels of gas and forecasts for mild fall weather, further advances are likely to meet growing resistance."

Tropical activity in the Atlantic Basin has re-emerged. An area of low pressure about 400 miles south-southwest of the Cape Verde Islands has a 40% chance of becoming a tropical cyclone in the coming days as it moves slowly northward, according to the National Hurricane Center in its 2 p.m. EDT Tuesday report.

Near-term weather is likely to have little short term market impact. According to Kari Kiefer, Wunderground.com meteorologist, "The central U.S. will experience calm, dry conditions on Tuesday as a ridge of high pressure builds over the Midwest. The Lower Mississippi River valley can expect warm, humid weather due to an onshore flow from the Gulf of Mexico, while cool, dry conditions will move through the upper Midwest. High pressure is also expected to build over the Great Lakes, which will bring calm weather to the Ohio Valley and most of the Northeast." 

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