The bulls within the natural gas futures market received some much-needed support Wednesday as the weather picture got a whole lot more interesting with three separate weather systems forming in the Gulf of Mexico and the Atlantic. As a result, October natural gas punched higher, recording a high of $6.470 late in the session before closing out the day at $6.438, up 50.4 cents from Tuesday.

Late Wednesday afrternoon, Tropical Depression Eight (TD8) with winds near 35 mph was approximately 1,065 miles east of the Lesser Antilles and expected to strengthen into a tropical storm Wednesday night or Thursday, while Tropical Storm Humberto, which came to life in the Gulf of Mexico Wednesday morning, was about 50 miles south of Galveston, TX, with wind speeds of near 50 mph. Humberto was expected to make landfall Wednesday night between Port O’Connor, TX and Cameron, LA, according to the National Hurricane Center (NHC). A third disturbance was appearing halfway between TD8 and Florida, heading west.

Also supporting natural gas futures was continued strength coming out of the neighboring crude futures pit. For a second consecutive session (see Daily GPI, Sept. 12), crude — fearing a supply crunch — settled at an all-time high. After busting above $80/bbl earlier in the session, the October contract closed at $79.91/bbl, up $1.68 from Tuesday.

“While the industry was still digesting the ramifications of the Mexico pipeline explosions, we had three storm systems of various magnitudes pop up on the radar Wednesday that could threaten Gulf of Mexico infrastructure. As a result, the funds were rushing to cover their shorts,” said Ed Kennedy, a broker with Commercial Brokerage in Miami. “We stayed above $6.020, so we saw a lot of panicked short-covering. Trust me, the funds were looking for volume because I was selling volume. I could put an order to sell 300 on Globex and it would actually pull the market towards me because the funds were looking for that volume.”

Kennedy added that while rumors said the funds were doing the covering, today’s market makes it much harder to tell who is doing the moving and shaking. “There is no way to tell who really is doing what,” he said. “With electronic trading, we are far more rumor-driven than when we could actually see who was doing what on the trading floor. You can’t see diddly squat on Globex. It is just numbers and volumes.”

On the supply front, Kennedy said that while the Mexico situation is of interest, the real news is liquefied natural gas (LNG) going everywhere but the United States.

“It is no secret that Mexico is a net importer of natural gas,” he said. “With the explosions, they will be importing a little bit more. However, the big story out there is the faulty thinking that the U.S. will have plenty of supply because of LNG shipments. LNG is an arbitrage market and the shipments will go to the highest bidder, even if the shipment is already en route. All of those shipments that we were expecting here in the near term are heading to Japan and China because they need the gas and are willing to pay for it.”

Kennedy cautioned that while storage is healthy, the summer is winding down and temperatures are moderating, and disruption to supply can “make things hairy around here real fast because you can’t just rely on domestic production anymore.”

While it is likely that more U.S. gas is heading to Mexico in the wake of the terrorist attacks Monday on the country’s natural gas pipeline infrastructure (see Daily GPI, Sept. 11), the increased flows will likely be a short-lived event, according to Petroleos Mexicanos (Pemex) officials.

Pemex spokesman Carlos Ramirez told NGI that the Mexico state run energy company is currently “bypassing” some of the damaged pipelines, but that rerouting “takes time.” He added that the current volume that is being interrupted is 1.2-1.4 Bcf/d. Ramirez eyed Sunday or Monday as possible “restoration” dates, adding that natural gas in Mexico is used “predominantly at the industry level, less at the consumer [level].”

According to reports, hundreds of Mexican companies that rely on natural gas to function were forced to idle operations following the blasts.

Turning attention to Thursday morning’s natural gas storage report from the Energy Information Administration, most industry expectations were looking for a build in the low 60s Bcf for the week ended Sept. 7. Golden CO-based Bentek Energy was expecting a 63 Bcf injection and a Reuters survey of 20 industry players produced a 62 Bcf build expectation.

The number revealed Thursday morning at 10:30 a.m. EDT will be compared to last year’s 103 Bcf injection and the five-year average build of 88 Bcf.

No matter what appears Thursday, some industry experts projected a record-breaking injection season when all is said and done after the final six weeks of the traditional injection season..

“We’ll be full,” Steve Baker of Union Gas Ltd. said at the LDC Forum Mid-Continent in suburban Chicago on Tuesday. Baker, Bob Truman of CenterPoint Energy Service Inc. and Mark Cook, vice president of SGRM, were unanimous in predicting a record-breaking year.

They also said changing North American market dynamics — including a reduction in gas flows from the Western Canadian Sedimentary Basin and other traditional sources, increased gas supplies from the Rockies via the Rockies Express and proposed LNG terminals on the East Coast — have not altered one time-tested market rule. “There is a need for more storage in North America. I’ve never heard anything different,” Cook said.

Existing storage was built to serve existing pipelines and markets and new pipelines, including the Rockies Express and a host of smaller lines due to come online in the South in 2008, may force a reconfiguration of storage facilities, Cook said. The Rockies Express will displace Gulf Coast supplies by capturing market share and storage injection demand, and will displace gas volumes on Texas Eastern, Tennessee, Columbia Gulf, Texas Gas and others, he added.

©Copyright 2007Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.