Taking the Tropical Depression 10-induced shut-in production into account, October natural gas futures bumped higher on Friday after scouting out support in morning trade. After notching a $5.800 low, the prompt month climbed higher, recording a high of $6.130 before settling at $6.080, up 7.2 cents on the day but 19.9 cents lower than the previous week’s close.

While Tropical Depression 10 was unable to strengthen much on Friday because it was hugging the Florida Panhandle, the shut-in gas in the Gulf of Mexico (GOM) was enough to get the attention of traders. The Minerals Management Service (MMS) reported Friday afternoon that 2,371 MMcf/d was off-line in the GOM (see related story).

“The reason we did not break down Friday was because of Tropical Depression 10 in the Gulf,” said Steve Blair, a broker with Rafferty Technical Research in New York. “Even though traders have been ignoring the storm all week, once the producers start shutting in all of this production, you can’t totally ignore it anymore. Once we got down to support near $5.740, we saw a whole bunch of short covering. Who wants to go home shorter than their core position ahead of a weekend where this tropical depression isn’t going to show us what it really is going to do until over the weekend?

“The market got near our futures support number at $5.740. Below that you have to look all of the way down to $5.250. There really has been no action between those numbers. When we head below $5.740, we shot down like a bat out of hell. When it rallied, it did the same thing. If we break $5.740, we’ve got a ways to fall.”

Blair noted that while the market cared about the storm, it still wasn’t deeply concerned, as evidenced by the reaction to the MMS shut-ins update late Friday afternoon. “We saw about an 8-cent rally when the MMS reported that 2,371 MMcf/d was off-line in the Gulf, but the market came right back down. Everybody is expecting that by the time we walk in Monday, it will be business as usual in the Gulf.”

AccuWeather’s Joe Bastardi pointed out that one reason the system has not become better organized is it has what he calls “two competing centers and a cold core. If there was one center, it would have a lot better chance to undergo the transition, but the competing centers mean there is no focused development and warming.”

Traders discounted any meaningful threat although production has been shut in. “Our trading posture in this market has shifted to the bearish side by virtue of [Thursday’s] breakdown back to below the $6 mark in the October contract,” said Jim Ritterbusch of Ritterbusch and Associates. He added that shut-in gas in the Gulf ahead of tropical weather developments was not having much market impact and that the shut-ins “should prove brief and the lack of significant Atlantic tropical storm development behind this system is an important bearish consideration at the present time.”

Looking at other reasons for a lackluster Friday, Blair also noted that the Jewish holiday of Yom Kippur beginning Friday night also likely kept things relatively quiet on the day. “That is probably why we saw the real short-covering rally earlier in the day as opposed to near the close.”

Looking at the market on a grander scale, Blair said he thinks futures have still not carved out a seasonal bottom. The current low for the move of $5.230 was recorded back on Aug. 27. “My sources tell me we’ll probably see an 80 Bcf injection in next week’s storage report, and we could get a 100-plus Bcf injection the week after,” he said. “By the time we exit September we could have 3.3 Bcf to 3.4 Bcf in the ground with four to six potential weeks of injection season left. Barring any storms, this is why I don’t think we have seen a bottom in this market.

“I originally thought we would see new lows and possibly a $4 handle before the October contract expired. I don’t know if that is going to quite happen, but if it doesn’t, we will probably see it early in the November contract.”

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