After staking out a session low of $13.75 in morning trade, November natural gas futures steadily climbed for the remainder of the session Tuesday, hitting a high of $14.24 before closing at $14.224, up 20.7 cents on the day.

While shut-ins in the Gulf of Mexico from Hurricane Rita continue to decline, concerns on winter gas supply adequacy remain.

“I think as far as the bad news is concerned, we are finally over the hump,” said Ed Kennedy of Commercial Brokerage Corp. in Miami. “Shut-in figures are down to 72%, the Henry Hub is coming back up on Wednesday and the force majeure is over. Each day you are going to hear about this rig coming back online and that pipeline building pressure. The question now is how much gas are we going to lose through the winter.

“We know that after Katrina we lost 2 Bcf for the winter, so the question is — are we going to add to that? That is the million dollar question right now.”

As for the storage situation, Kennedy said he expects the report on Thursday for the week ended Sept. 30 to be pretty “anemic” because it covers the week after Rita hit. “We are going to inject some from the West Region and there will likely be some from the Producing Region from the Permian Basin and Oklahoma area, but it should be fairly anemic.”

Despite what is expected to be a fairly small injection this week, the broker said he’s not too worried because the biggest users of storage are the utilities. “Once that gas starts flowing, price isn’t going to be an issue,” he said. “The reliability of supply is the mantra. We are heading out of the darkness from the woods and pretty soon we are going to start seeing some light on this whole situation.”

Kennedy said Tuesday’s 20-cent bump was technical buying by funds. “It was a small push. It didn’t need to be large because the market was quiet,” he said. “The trade [producers and end-users] doesn’t know what to do with it. You can’t say buy or sell if you don’t know what it is worth. If we lose any more gas for the winter, we could have a problem if there is a colder than normal winter. The key term is ‘could,’ because there is a big unknown there.”

As winter demand for residential heating picks up, intense competition for natural gas may emerge from a sector that had been largely discounted. “[Monday’s] soaring ISM (Instititute of Supply Managers) manufacturing number seems to suggest demand for natural gas will be high,” said Phil Flynn, a broker at Alaron in Chicago. On Monday the ISM reported the September index at 59.4%, way ahead of market expectations of 52%. The index is a survey of purchasing managers, and a reading above 50% is an indication of an expanding economy and economic growth.

“Many manufacturers with contracts will be sent scurrying for supply and this could lead to tightness in other products. This comes at a time when the U.S. government is warning Americans that our heating bills will be 70% higher this year,” noted Flynn. Currently Gulf of Mexico gas production is at almost 30% of normal and potential competition for supply looms. “The lack of progress on the natural gas front is leaving traders to guess just what the end game will be this winter,” said Flynn.

Some traders are guessing that the market stays about where it is for the short term. “It’s hard to say if the market is at a near-term top. The fact that it held above $14 in the November contract Monday is encouraging even though the oil sector retreated. That indicates a firm market,” said Marshal Steeves, analyst with Refco in New York.

He added that improvements have been small in getting Gulf gas production online, and “I don’t see the market retreating until that number improves. Perhaps in the next couple of weeks, the pre-Rita production levels can be reached,” he suggested.

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