Natural gas futures were off to the races Monday morning as traders weighed the virtual certainty that Hurricane Lili would become the second storm in a week to impact production in the Gulf of Mexico. After gapping higher at the opening bell, the November contract quickly moved to a new four-month high (Access trading excluded) at $4.195 Monday morning. After dipping slightly to settle for the regular session at $4.138, the November contract was rebounding in overnight access trading. At 7:00 p.m. EDT, it last traded $4.194, up 5.6 cents from its close.

Lili became the fourth hurricane of the 2002 Atlantic Hurricane season Monday morning with maximum sustained winds of 75 mph, according to the National Hurricane Center. At 5 p.m. EDT the storm had passed over the Cayman Islands and was expected continue toward the west-northwest at about 10 mph. Further strengthening was expected over the next 24 hours, the NWS said.

On its current track, Lili will likely gain access to the Gulf of Mexico as it passes over western Cuba Tuesday. And while some weakening is possible as it passes over land, it is unlikely that Lili will follow Isidore’s path over the Yucatan peninsula, said meteorologist Jon Davis of Salomon Smith Barney. “The Yucatan really took the punch out of [Isidore], because it was over land for about 36 hours. It never really gained that back. Right now there is no indication that the Yucatan is going to have that type of effect on Lili,” he continued.

Isidore, which was a strong category three storm before hitting the Yucatan peninsula, never re-gained hurricane status before striking the Gulf Coast near New Orleans last week. However, the storm made its mark on the natural gas market by shutting in an estimated 25 Bcf of production (see Daily GPI, Sept. 27).

That being said, Davis looks for the eye of Hurricane Lili to strike either the Louisiana coast or the Texas coast near Louisiana late Wednesday night or Thursday. Although it does not look to be as big a storm as Isidore, Lili will bring a general deterioration of weather along the Gulf Coast by Wednesday morning. However, the track of the storm is easier to predict than its expected intensity. “There are parameters there that are certainly pretty good for intensification. Whether the storm gains category two, category three or category four status as it moves up into the Central Gulf, it is very hard to say, but certainly the potential is there for some strengthening.”

Category two storms pack maximum sustained winds of 96-110 mph and category three storms range from 111-130 mph, according to the Saffir-Simpson Hurricane Scale.

As it was last week with Isidore, the market price movement tied to the direction and the intensification of Lili. However, traders will not lose sight of technicals entirely. Looking at a daily November chart that includes after-hours Access trading, Tim Evans of New York-based IFR Pegasus sees immediate resistance in the $4.20-22 area. “The trade to $4.18-20 so far [Monday] has left November futures just shy of last week’s $4.19-22 top (Access trading included), but a breakout beyond that span threatens a run to the top of the rising price channel at $4.446. This measure currently coincides with the $4.44 spot high from June 2001,” he wrote in a note to customers Monday.

On the downside, support is consistent with the $4.095-120 chart gap left by Monday’s gap high open.

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