October natural gas futures shot 37.4 cents higher Monday to close at $6.653 as the market dealt with another round of short-covering supported by continued crude price strength combined with news that a compressor station outage had cut off deliveries to Cheyenne Plains Gas Pipeline from two major pipes out of the Rockies.

The prompt-month natural gas futures contract reached a peak of $6.690 before coming to a close. Over in the crude futures pit, the October contract continued to show no signs of weakness, closing $1.47 higher at $80.57/bbl.

“I think we are still seeing fund short-covering in natural gas. Over the past few weeks, they have been showing that they want to stay short,” said Tom Saal with Commercial Brokerage Corp. in Miami. “I think the funds are now starting to change their tune, so that is what we are seeing in the market. Maybe they don’t want to stay on the short side en masse.”

Pipe constraints out West weren’t helping to create lower natural gas futures prices either. On Sunday, El Paso Corp. said its Cheyenne Plains compressor station had completely cut off deliveries to Cheyenne Plains from Wyoming Interstate Co. (WIC) and Colorado Interstate Gas (CIG) (see related story).

Saal said the pipe news definitely could have affected prices Monday. “I’m sure the Cheyenne Plains news didn’t hurt the level of futures buying on Monday,” he said. “While the funds don’t need a reason to buy, they normally like to have some sort of spark. I’m sure the outages had some contributing impact, but I would not place the whole rally on the news.”

Some within the industry said the seasonal bottom for futures could very well already be in. Jay Levine, a broker with enerjay LLC, said the market will now begin to talk about cooler temperatures as summer gives way to fall, then winter. “The future will always be a concern — fundamentally ‘challenged’ though it is now — and since concerns often translate into some measure of fear premiums, those looking for a $4 handle (like last year) may turn out to be blue if it doesn’t materialize.”

Responding to industry insiders who are targeting last year’s $4.050 low for a visit, Levine said that “just because something ‘worked’ last year doesn’t mean it’s going to work this year, particularly since there are many factors — technically, psychologically, and, yes, even fundamentally — any of which can alter what may seem a fait accompli.”

Another trader saw the recent futures rally as a sign that the liquefied natural gas (LNG) delivery model — which has been touted so highly over the past 10 years — could be broken (see Daily GPI, Sept. 13; Sept. 12).

“I think the LNG equation needs a closer look here,” said a Midwest trader. “I am hearing that a lot of LNG has been ordered, but it is not showing up due to price. The system is based on ‘best efforts.’ The buyer in the United States is planning on it arriving and then at the last minute it goes to China or somebody else who pays more. Without that gas, that buyer has to reconfigure their whole supply plan. I think that is the real story.”

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