Gas futures market observers were startled Wednesday when the October contract bolted 23.8 cents higher to $4.968 ahead of what many experts forecasted would be a large gas storage injection number in Thursday’s weekly EIA storage report.

Technical factors and Hurricane Isabel clearly outweighed the storage situation, which many believe already has been factored into prices. Tom Saal of Miami-based Commercial Brokerage described the events leading up to Wednesday’s rally as “like a three-stage rocket.”

“First you have the market drifting sideways to slightly up on lack of selling. Then you have the [hurricane] leaving sellers apprehensive about putting on short positions… And then the funds started buying and that has a tendency to cascade on itself because the prices are moving higher, triggering more orders to cover shorts.”

He said last week’s low of $4.55 could be the near-term bottom for the market heading into the winter. “It didn’t do one thing it needed to continue to spiral downward,” he said. “The market did not settle below $4.60.”

On the weekly chart, a spot low at $4.58 was set at the end of July and on Sept. 2 it was back down to $4.55, but was unable to follow through to the downside. It appears that the bear market, which has been in place since June or even back to February, looks like it might have run out of steam, said Tim Evans of IFR Pegasus.

Evans said once the market pushed through Monday’s high at $4.885 it convinced “quite a few more people to cover some short positions. Hurricane Isabel is a part of it, but I also think that we’re in September and the heating season is not that far off; that’s also a piece of the puzzle here. The funds may not want to hold net short positions right into the teeth of the heating season.”

The latest Commitment of Traders report from the Commodity Futures Trading Commission showed the speculative funds being net short 32,116 contracts as of Sept. 2. Total open interest was 338,364 with commercials net long 7,073 (see the Intelligence Press homepage for more details).

Based on this week’s activity, Saal said he’s expecting a pre-winter rally. He noted that last fall there was a pre-winter sell-off because nearly every meteorologist was predicting an el nino winter. Early forecasts for this winter are calling for below normal temperatures early followed by normal weather, said Saal.

The winter strip currently is at $5.415. Last winter, futures settlements averaged about $5.60. “This market is expecting a repeat of last winter,” Saal noted, adding that the first indication that temperatures are not following last winter’s pattern could prompt a volatile shift once again in prices.

In the meantime, Hurricane Isabel is becoming a strong psychological factor. The National Hurricane Center said Wednesday at 5 p.m. (AST) that the dangerous Category Four hurricane is strengthening with maximum sustained winds at 140 mph and extending about 60 miles from the eye. The five-day forecast track shows the storm pointing right toward the Bahamas, then across to Miami and possibly into the Gulf of Mexico.

“It’s really unclear whether it could thread its way into the Gulf of Mexico or whether it would plow right across Florida and muscle its way in,” said Evans. “It’s a powerful storm certainly. The central pressure on that thing at 948 millibars is dangerous. It’s a nasty, tightly wound little storm and the five-day forecast on it has a little bit of a turn to the north toward the Bahamas but hardly conclusive enough to say its headed for Bermuda like Fabian.”

Opposite Isabel on the scale of market fundamentals is the storage report. The range of expectations is for a weekly injection of about 70-110 Bcf with most observers expecting 80-90 Bcf. Saal is on the low end with 77 Bcf. Evans expects 80-90 Bcf compared to a 68 Bcf five-year average and a 70 Bcf injection in last week’s report. Jay Levine of Advest Inc. is forecasting an 89 Bcf injection. Citigroup’s Kyle Cooper is expecting a 95-105 Bcf build.

Because of special activities associated with remembrances of the attacks of Sept. 11, 2001, including the late 10:51 a.m. opening of Nymex Thursday, the Energy Information Administration (EIA) will release the storage report at 11:15 a.m. (EDT) rather than the usual 10:30 a.m.

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