October natural gas surged higher Tuesday, and although analysts weren’t quite ready to say the seasonal low is in, they noted that those holding short positions may be ready to throw in the towel. At the close October had risen 9.5 cents to $3.980 and November had advanced 8.8 cents to $4.054. October crude oil jumped $2.02 to $90.21/bbl.

Analysts suggest that it may be just a matter of time before a seasonal rally kicks in. “You have to ask who is the most frustrated here, the longs or the shorts,” said Walter Zimmermann, vice president at United-ICAP. “For the last six weeks we have had a market super-saturated with shorts, and although there are a few bulls out there, there are a ton more frustrated shorts than longs.

“We are also moving into the most dangerous time of year to be short the natural gas market, the September-November period.” He also pointed out that there is a prominent uptrend line in place that connects the low of $2.409 of September 2009 and the $3.212 low of October 2010. “We touched that line three weeks ago; we touched it last week, and we touched it this week, and every time we have gotten a little bit of a bounce. The question is what is sustaining the patience of the shorts.

“I think it might be the perception that the market will weaken based on a weak stock market and a strengthening U.S. dollar, which has been very bearish for crude oil and other petroleum products. What you have to remember is that the natural gas market has been unaffected by those factors for quite a while. The bears have a misplaced patience.”

Forecasters are calling for some late-summer warmth. “Above-normal temperatures are forecast over Northern California and Texas,” said WSI Corp. of Andover, MA, in its Tuesday morning six- to 10-day outlook. Its data show that “anomalies as warm as five to six degrees above normal are anticipated in the warmest locations. More seasonable readings are expected to encompass most of the rest of the country.

“Temperatures may trend warmer along the West Coast than currently forecast if the American models come to fruition. American models depict an almost classic late-summer heat pattern setting up for the West Coast next week. European models depict a more progressive pattern in the West and are not nearly as warm.”

Analysts, however, see weather patterns tempering bullish enthusiasm. “When we end this week, it will really feel like autumn, and the hot readings of summer will be mostly behind us. Even in the Midcontinent, in the vertical corridor from Texas, which has been experiencing readings of 90-100-plus almost all summer, temperatures are forecast to break below 90 for the first time in months,” said Peter Beutel, president of Connecticut-based Cameron Hanover.

“It looks like the triple-digit heatwave that has wracked Texas, Oklahoma and Kansas is about to break; the U.S. Gulf has been cleared of tropical activity and the Caribbean is starting to get calmer. There are still some disturbances that bear watching, but there are no major threats right now.”

Beutel is not that certain that last year’s record storage levels won’t be challenged. “The summer is ending with deficits more or less intact against last year and against the five-year average. But this may be as bullish as it gets. It does not seem likely that the deficits will get any more pronounced as we move through autumn. We would not need very large additions to storage to challenge the all-time storage highs by Nov. 1 again this year if we fail to see any decline in storage levels.”

Forecasters are scratching their heads trying to determine the likelihood of any new tropical storms. “The models are struggling with consistency and consensus on next week’s Caribbean concern,” said Matt Rogers, president of Commodity Weather Group. “This means that the odds of a significant system emerging have diminished a bit, but this is still worth watching.” In the meantime the National Hurricane Center reported that Tropical Storm Marie continues to grind away in the western Atlantic. At 5 p.m. EDT Tuesday it was located 320 miles east of the Bahamas and was holding winds of 50 mph. It was moving to the north at 8 mph and was projected to turn to the east away from the U.S. mainland.

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