Central and eastern Gulf producers fled the wrath of Tropical Storm Bonnie on Wednesday last week but many quickly remanned platforms Thursday and Friday and resumed production, which on top of cool weather, heavy rains and high storage levels sent cash and futures prices cascading back down from their briefly held peaks.

At the height of the tropical storm on Wednesday, the Minerals Management Service (MMS) reported that about 2.1 Bcf/d of Gulf of Mexico gas production and 420,000 bbl/d of crude oil production was shut in and personnel were removed from 108 platforms and 37 drilling rigs. The shut-in gas represented 16.65% of the approximate 12.3 Bcf/d of Gulf of Mexico output, MMS said.

Gas futures prices soared back up to a high of $5.96 (September contract) on Tuesday in anticipation of Bonnie’s impact and ended the day up 9.8 cents at $5.791. Cash prices also spiked nearly 20 cents to about $5.77/MMBtu at the Henry Hub in Louisiana and $6.18 at the New York Citygate.

Wednesday and Thursday, however, were entirely different with sharp near-month gas futures declines of 17.7 and 17.2 cents, respectively. The September contract ended Thursday at $5.442, less than a penny above its daily low and only managed to gain a few cents on Friday by early afternoon.

Cash prices also dipped, with New York Citygate hitting $6.06 on Wednesday, Chicago Citygate at $5.65, down 13 cents from Wednesday’s levels, and the Henry Hub at $5.64. All cash points fell between a dime and about a quarter in trading on Wednesday despite Bonnie bearing down on eastern Gulf platforms.

By Thursday morning gas production shut-ins had fallen to 1.1 Bcf/d. About 154 platforms and 32 drilling rigs remained evacuated, but the evacuations were ending quickly. ExxonMobil, Shell, Kerr-McGee, Murphy Oil, Anadarko and Marathon were among producers that reported returning workers to offshore sites and restoring output from wells that had been shut in.

El Paso Corp. reported that all 160 MMcf/d of shut-in reductions Wednesday on its Tennessee Gas Pipeline system had been restored, and that the shortfall on Southern Natural of 200 MMcf/d on Wednesday had dropped to about 15 MMcf/d by late Thursday afternoon.

Tropical Storm Bonnie almost reached hurricane status Wednesday night but failed before moving onshore near Apalachicola, FL, late Thursday morning. It remained on a northeasterly tracking after hitting land.

Meanwhile, Hurricane Charley became a category 2 storm with winds of 105 mph and a well defined eye while moving through the northwestern Caribbean Sea. However, the National Hurricane Center’s projection showed Charley proceeding north through Florida and on into the other South Atlantic states, keeping it away from Gulf of Mexico production.

The weather also was very mild all week, in fact well below normal in some major eastern market areas. The cooling rains from the storms only further reduced demand.

The storm shut-ins quickly became a non-event for gas prices, commented a Northeast marketer on Thursday. However, “I was surprised that natural gas futures didn’t get any support from crude setting yet another record,” he said. Crude could get priced out of the fuel market if this continues, he noted, but for now gas is still relatively more expensive. He calculated that as of Thursday morning, 0.3% fuel oil delivered at New York Harbor cost $5.45 (converted for gas equivalence), or about 35 cents less than Thursday’s Transco Zone 6 citygates.

“We’re going to try to stay dry over the next couple of days,” laughed a Florida utility buyer. All the rain that the state was getting from Bonnie and Charley was expected to lower temperatures enough that Florida Gas Transmission could end its Overage Alert Day notice, which was in effect for the second day last Thursday.

Also on Thursday morning, the Energy Information Administration reported a 72 Bcf weekly gas storage injection, which was on the high end of expectations. All these bearish factors late in the week sent the market spiraling lower. But the storage situation is likely have a more lasting impact.

According to estimates from Lehman Brothers analyst Thomas Driscoll, gas storage injections have averaged about 1.35 Bcf/d higher than five-year averages over the last eight weeks. “With storage levels more than 100 Bcf above five-year averages, this could lead to further softening in near-term prices,” Driscoll said in a note to clients on Friday.

“We believe that residual fuel prices put a $5 floor under gas prices currently — but a sharp drop in oil prices would lower that floor,” he added. “We appear to be on track to end the [storage injection] season at about 3.2 Tcf of inventory — a level that could be 100 Bcf too high. We may need to see gas prices fall further to recapture 1 Bcf/d of demand (or hurricane related production shut-ins could bail us out).

“Although we are maintaining our second half gas price forecast of $6.15/MMBtu, we will be nervously watching injection rates and the weather,” Driscoll told investors.

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