For the sixth week in a row, natural gas futures climbed higherFriday as traders once again eschewed the short side of the marketahead of the weekend. After setting the tone with a $4.60 openingtrade, bulls ran the show at Nymex Friday, boosting the promptcontract 8.8 cents to close at $4.628.

Several traders contacted by Daily GPI were surprised by themarket’s strength following the news that Hurricane Debby had beendowngraded to a tropical wave. “This market has got me stumped,”said a Texas trader. “We move 30 cents higher Monday on the newsthat Debby had formed and then we gain another nine cents when sheweakens. I guess you could say this is a bull market,” he reasoned.However, as of press time Friday afternoon, forecasters had notentirely ruled out the storm reorganizing once it moved across warmGulf of Mexico waters.

One factor that undoubtedly entered into traders’ psyche on Fridaywas an uncertain timetable pertaining to when gas would begin flowingon any one of the three pipes that comprising the El Paso’s SouthMainline system that were shut in as a result of the explosionAug. 19. In order to re-open the least damaged of the three pipes —30 inch Line 1110 — El Paso must provide written results to theDepartment of Transportation summarizing the test results that wereordered to be performed on pipe (see relatedstory this issue).

And while the impact of the outage has most evident in cashprices for delivery at the Southern California border and also atpricing locations in West Texas, traders believe it gave a lift tofutures prices Friday. “This could easily create supply tightnesswell into the month of September and I wouldn’t be surprised to seeanother withdrawal in the Western Consuming Region in [this]Wednesday’s storage report. Unless those injections are made up inthe East, we could really see some upward pressure on prices,” aCalifornia marketer said.

Tim Evans of New York-based Pegasus agrees and feels it isunlikely that this week’s injection will come close to the 69 Bcfadded to storage last year at this time. And that may just be thetip of the iceberg. “Futures has moved higher during a period whenthe market has been chipping away at the year-on-year storagedeficit. Now what happens as we enter a period when the market willbe hard-pressed to keep up with the injections seen a year ago?”

Evans may have a point. Over the last five weeks, the market hasbeen able to inject an average of 58 Bcf this year versus anaverage of just 43 Bcf last year, resulting in a decrease of theyear-on-year deficit from 436 Bcf to 360 Bcf. However, goingforward it is doubtful the trend will continue. Beginning with the69 Bcf this week, the next five storage withdrawals seen this timelast year averaged a whopping 75 Bcf, which is more than the markethas been able to inject in all but three weeks throughout theentire injection period this year.

Another piece of empirical data traders will have to grapplewith early this week is the latest position break out from theCommodity Futures Trading Commission. According to its latestCommitments of Traders report, which covers trading through lastTuesday, non-commercial traders were net long 19,579 positions. Andwhile the funds have been anything but predictable over the lastsix months, Evans feels the report might point to speculatorsmaking another attempt at the long side of the market. “This is thelongest they have been since May and they have shown historicallythat they can be much longer. The real question is whether theywill add to their longs now even though prices are already sohigh?”

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