Just as it looked like prices were going to make another assault on the $3.00 level, natural gas futures rebounded yesterday morning in a knee-jerk reaction to reports that a tropical storm had formed in the Gulf of Mexico. While market watchers and traders have been mindful all week about a serious low pressure system bringing rains to Florida, few expected it to develop into a tropical system so quickly. The September contract led the price march higher, finishing 11.1 cents stronger at 3.192. The 12-month strip, meanwhile, lagged somewhat, closing 7.8 cents higher at $3.533. Estimated volume was light with just 52,503 contracts changing hands. As of 5 p.m. EDT Thursday Barry was about 315 miles southeast of the mouth of the Mississippi River, according to the National Weather Service. It was moving toward the northwest at 4 mph and likely to make a gradual turn to a west-northwest track Friday, NWS said, forecasting “some strengthening” of Barry, which was packing a maximum sustained wind of 45 MPH yesterday evening. A tropical storm is labeled a hurricane when sustained winds have reached 74 MPH.

While cash prices will likely trend higher Friday in sympathy with the double digit gains achieved by the futures market yesterday, it is not a foregone conclusion that the futures market itself will continue to ride Barry’s wave. In fact, several market-watchers contacted by NGI were hesitant to endorse the long side of the market yesterday for fear the correction downward, (once Barry is no longer deemed a threat to gas production in the Gulf of Mexico) will be severe. Evidence of the market’s unwillingness to fully accept the tropical storm as a factor in the market is seen in yesterday’s estimated volume in the gas pit at Nymex, which registered a paltry 52,503.

Also of negative impact is the timing of the storm, a trader said. “Because Barry will have not yet have made landfall by the close of trading Friday, those who elect to head into the weekend long had better feel very strongly about the potential for damage to gas assets in the Gulf. There have been some evacuations, most of which are mandated by the insurance companies that insure the offshore rigs, but we have not heard of any shut-ins. This thing could be right back down near $3.00 in an instant,” he reasoned.

If the market is able to shrug off the second named storm of the nascent hurricane season, it will encounter support first at the congestion area formed by Wednesday’s and Thursday’s lows in the $3.070-095 area. More buying is likely at psychological support at $3.00 and then again at $2.95.

As of 8:15 P.M. (EDT) last night, Access trading was showing little signs of life, with the September contract off 1.2 cents at $3.18.

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