Sparked by continued uncertainty surrounding Hurricane Katrina’s impact on production infrastructure and buoyed by significant petroleum price strength, October natural gas futures in their first day as front-month contract on Tuesday climbed higher to settle at a record $11.659, up 52 cents from Monday’s close.

During the course of the session, October natural gas climbed as high as $12 in the morning and ventured as low as $11.50 in the afternoon, before settling on the low side of the day’s range.

Also playing to reports of rig damage and shut-ins, the petroleum futures sector, led by an off-the-chart performance by unleaded gasoline, charged higher on Tuesday. September gasoline climbed as high as $2.50/gallon before settling at $2.4745/gallon, up a sizeable 41.39 cents on the day. October crude notched a new high at $70.85/bbl before closing at $69.81/bbl, up $2.61 on the day.

“Natural gas futures on Tuesday traded on light volume,” said Tom Saal of Commercial Brokerage Corp. in Miami. “It really seemed like a skittish market. People were nervous about buying it and selling it. October natural gas moved higher on Tuesday in response to all of the uncertainty surrounding rig and pipe damage. This could be a big case of buy the rumor, sell the fact.”

Advest Inc.’s Jay Levine said, “While the current environment may be quite startling, it really shouldn’t come as too much of a surprise, if only for the reason that the markets had already been trading at a frenzied pace, and a real threat — enter Hurricane Katrina — would likely make matters (concerns) worse. And, as often is the case, the full extent and assessment of any damage may take some time — thereby adding yet another layer of concern. So if any of us are thinking that this must surely signal we’re near the top — and the recent flurry clearly qualifies as a buying climax (if not one of several) — we might have another thing coming. Hard to tell, if not impossible to know.”

A top analyst is keeping his fingers crossed that production infrastructure damage from Katrina may be less than feared earlier. “The damage does not appear to be as catastrophic as feared. That assessment may easily change over the next few days,” said Kyle Cooper of Citigroup. He pointed out there are reasons the damage may not be as bad as thought. Although data quality may be an issue, the wave heights seemed to be much lower than with Ivan. While Katrina reached much higher wind speeds, Ivan was bigger for a longer period of time, and traveled all the way from the lower Caribbean, allowing a great deal of time and distance for the waves to build, Cooper said.

Cooper admitted that at this point it is only conjecture, but “I can only assume that the infrastructure rebuilt after Ivan is stronger than what it replaced. Thus, possibly less damage was inflicted on the more robust infrastructure. However, that all remains speculation,” he said.

Others aren’t quite so optimistic. “Until production in the Gulf is better defined in a few days, the natural gas market will opt to price in a worse case situation as vivid memories remain of Hurricane Ivan’s substantial damage that was not revealed for several days after the storm,” said Jim Ritterbusch of Ritterbusch and Associates.

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