After ignoring the price drops in the petroleum futures complex almost entirely on Tuesday, October natural gas futures couldn’t look away a second day in a row. In addition to petroleum weakness, prompt month natural gas was helped lower Wednesday by positive news from the Gulf of Mexico, settling at $11.201, down 45.6 cents on the day.

After trading significantly lower in the overnight Access trading session, the futures market would have needed an injection of bullish news to keep it afloat Wednesday. Without that news, traders, were forced to bring the market lower, reaching a low of $11.05 just after 11 a.m. EDT.

“I think we continue to make incremental progress towards restoring production in the Gulf,” said Tim Evans of IFR Energy Services. “I also think there is some potential for production from other regions to ramp up. I swear that’s part of what happened in the wake of Hurricane Ivan last year. We lost 172.3 Bcf due to that storm, yet we really never saw a deficit of that size show up in the storage numbers. I think there might be some producers selling into these prices now as well as a little bit of willingness to take profits, where as a week ago we were afraid to take profits.”

In addition, Evans said the relationship between natural gas futures and crude oil futures remains of importance. “The crude futures market continues to look more and more bearish,” he said. “Prices are 50% higher than a year ago despite an inventory surplus and now the government wants to try to sell 30 million barrels out of the Strategic Petroleum Reserve into that market that is already supplied, so there is reason to worry that crude oil prices may be ready to collapse. If they do collapse, that leaves the natural gas market vulnerable to at least a significant downside correction.”

On Wednesday, October crude settled $1.59 lower at $64.37/bbl, while October unleaded gasoline and October heating oil also closed lower by 3.28 cents and 9.20 cents, respectively, to finish the day at $2.0222/gallon and $1.9623/gallon.

Evans pointed out that the difference between natural gas prices and storage levels this year just don’t add up. “Relative to a year ago, we have natural gas storage that is 1.9% lower than it was at this time last year and we have a futures price Wednesday that is 133.8% higher than on this date last year,” he said. “That’s a big discrepancy.”

Evans said the situation will require an ongoing flow of additional bullish news in order to try to hold this level. “We didn’t really get that bullish news today, so we had to give back at least a portion of our value.”

As for the relationship between crude and natural gas prices, Evans said while the natural gas market may have been able to ignore crude futures’ initial drop on Tuesday, at this stage following a second drop in crude prices, natural gas has to make some sort of adjustment for it.

Refco’s Marshall Steves said he has been a little surprised at the pace at which Gulf gas has returned to production. He cautioned production losses may be reduced significantly, but “as it was with Ivan, the last production could be quite painstaking [to restore]. I think it is still necessary to get further information on what the damages are to the pipelines at the bottom,” he said. “The improvement in production is one of the reasons that natural gas futures are ‘pegging out’ at current levels.”

Steves also warned it was still an active hurricane season and “the next one that pokes its head into the Gulf could knock prices up another couple of dollars.”

Turning attention to Thursday mornings natural gas storage report for the week ended Sept. 2, Evans said he believes the Energy Information Administration will report a build of 20-30 Bcf. Citigroup’s Kyle Cooper estimates this week’s EIA report will show injections of 25 to 35 Bcf. “Obviously considering all the effects of Katrina, our confidence is very low and a number simply within our range will be welcomed,” Cooper said.

The ICAP-Nymex storage options auction on Wednesday revealed a consensus forecast of a 29.9 Bcf injection. Whatever the number is, it will be compared to last year’s 80 Bcf injection and a five-year average build of 71 Bcf.

In trading news, the New York Mercantile Exchange (NYMEX) will change its trading hours on Friday, Sept. 9 to commemorate the Sept. 11, 2001, attack on the World Trade Center. Open outcry trading in NYMEX energy futures and options markets and the New York Board of Trade cotton No. 2 and sugar No. 11 futures and options markets will not open at their regular times.

Energy trading will open at 11 a.m. EDT, while the cotton pre-open will be at 11 a.m. with the opening at 11:05 a.m. NYMEX metals futures and options markets and the New York Board of Trade coffee, sugar No. 14, ethanol, cocoa, frozen concentrated orange juice, pulp, and financial markets will open on time, while the Sugar No. 11 will have a delayed opening until 9:05 a.m.

Both exchanges will then observe moments of silence at 8:46 a.m., 9:03 a.m., 9:59 a.m., and 10:29 a.m., marking the times that each of the World Trade Center towers was hit by a plane and then collapsed. The markets will remain closed for an additional 30 minutes after the final minute of silence, in memory of each of the former members, staff and clerks affiliated with the two exchanges who died that day, and will reopen at 11 a.m. NYMEX also reported that trading and clearing on the NYMEX electronic systems will be closed during the same periods.

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