Tropical Depression Ten was churning south of Jamaica Tuesday evening and was poised to become a Tropical Storm in the next 24 hours, according to the National Hurricane Center. The storm contributed to a sharp rise in futures prices Tuesday — the October contract soared to a high of $3.69 — but failed to produce much of an effect on cash prices until very late trading. Most cash points were flat to up or down a few cents on average.

Current projections put the storm near the Yucatan Channel Friday morning, and weather forecasters were starting to warn residents along the Gulf Coast and Florida to begin paying close attention to its developments.

“Prices really didn’t firm up as much today, but I would expect they will be up 10-20 cents tomorrow because of the storm and the Nymex run-up,” said one western marketer. “I was a little surprised at the strength in California relative to the Henry Hub. PG&E Citygate was a nickle over the hub on Monday compared to a nickle below last week, and today it’s still strong despite the OFO. It really doesn’t seem to make sense.”

PG&E irked a few traders by not calling an operational flow order Tuesday morning (for Wednesday flow) and then quickly changing its mind. “We got information after we initially posted that there wouldn’t be an OFO. It changed our outlook,” said a PG&E California Gas Transmission spokesman. “We saw more supply coming on our system than we anticipated. I can’t go into the details.”

PG&E called a high inventory system-wide operational flow order for Sept. 18 and forecasted a progressively worse situation through the end of the week. The Stage 2 OFO has a $1/Dth noncompliance charge and 3% tolerance. System inventories jumped into the red zone Tuesday at 4,556 MMcf/d, and PG&E said it expects inventories to reach 4,990 MMcf/d, or about 490 MMcf/d above its normal operating limit, by Friday.

PG&E Citygate prices shot up as high as the low $3.50s, but fell back to the low to mid $3.40s after the OFO was announced. Malin was up 5-10 cents to the low $3.30s.

October basis continues to come in at the Southern California border, said one marketer. “It’s 13.5 (cents) today, but it had been as wide as 25 last month. It’s been flat to Permian because San Juan has been so low and they haven’t really needed enough gas to come into Permian and pay Permian plus variable costs to get that gas.” He also mentioned that the Waha-Katy spread has been running 13-17 cents, but is expected to widen some with the cool front coming through the Midcontinent this week that is expected to cause less demand at Waha.

Henry Hub cash closed without much of bang Tuesday. Prices were only a penny higher on IntercontinentalExchange at $3.46 on average, and over-the-phone cash quotes were only slightly higher. Other Gulf Coast points were a mixed bag with some showing small declines and others minor increases.

“The [Henry] hub is so thin right now that people can push it around pretty easily,” said a Gulf Coast trader. “It only trades 60-90 contracts a day on ICE compared to about 300 contracts a day about six months ago. That’s a reflection of the overall market, not just ICE. There are points that hardly trade at all anymore.”

Several observers mentioned the nuclear situation and its expected positive impact on gas demand this month. “We do have some nukes that are going to be coming down here soon to retool and refuel and that will be huge,” a producer said. “We’ve been running these nukes without taking them down very much, and I think as we’ll start seeing the nuclear fleet take units off line that will put some additional support under prices. We’ve had a drop of nearly 5,000 MW since early September, and I would expect that to continue.”

The Nuclear Regulatory Commission reported about 9,300 MW of nuclear capacity off line Tuesday. The units that were at zero capacity included Millstone 3 in Connecticut, Peach Bottom 2 in Pennsylvania, Farley 2 in Alabama, McGuire 1 in North Carolina, North Anna in Virginia, Besse 1 in Ohio, Byron 2 in Illinois, Point Beach in Wisconsin and Grand Gulf in Mississippi.

“I definitely don’t think the fundamentals justify $3.60 October futures right now,” said one utility buyer. “I would think something down in the $3.20s would be more reasonable. I think cash is just reacting to futures and should be much lower. Physical has been trading relatively strong today compared to where the screen was and that just doesn’t make sense. Liquidity has collapsed 60% or maybe more, and that has to be a big factor. Of course, a tropical depression in the Gulf is not going to help things this week. I don’t understand why the sellers aren’t coming out of the woodwork for this.”

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