With Hurricane Katrina altering its path farther west into the Gulf of Mexico over the weekend, natural gas and petroleum futures felt the wrath in Sunday overnight Access trading and again on Monday. The expiring September natural gas contract hit a new all-time commodity high of $12.070 in Access, eclipsing the previous high of $11.899, which was set during a spike on Feb. 25, 2003.

Katrina’s path of destruction cut a swath through a major concentration of domestic crude oil, gasoline and natural gas production. The Minerals Management Service estimated that about 8.3 Bcf/d — or more than 80% of the 10 Bcf/d of natural gas production in the Gulf of Mexico — was shut in on Monday (see related story).

The section of the Gulf of Mexico south of New Orleans is crowded with oil and natural gas production platforms and the coastline is clogged with numerous massive oil refineries. Energy companies over the weekend removed thousands of personnel from the Gulf — home to nearly one-quarter of U.S. oil production — shutting down oil and gas operations, and began to wind down refinery operations.

After opening at $11.20 on Monday, September natural gas got as high as $11.70, before exploring lower on profit-taking. After bouncing off $10.65, the prompt month expired at an all time high of $10.847, up $1.055 from Friday’s settle. Taking over as prompt month, October natural gas climbed $1.333 to close at $11.139.

The petroleum complex felt Katrina’s impact as well, especially in unleaded gasoline. September unleaded gasoline was as high as $2.1600, but ended up settling at $2.0606/gallon, up 13.37 cents on the day. October crude reached an overnight high of $70.80/bbl, but settled on Monday at $67.20, up $1.07 from Friday. September heating oil experienced a 7.22 cent rise to $1.9088/gallon.

“Out of the energies, natural gas held the most of its gains on Monday,” a Washington, DC-based broker said. “At one point, I thought crude oil was going to turn negative before the late rally. What happened at the end, was simply a short-covering rally of everyone who had been selling crude. They deserve to take their profit, too. I really think the last bump across the energies really was profit-taking.

“Right now, everyone is wondering what is broken or damaged and what is floating way off course,” he continued. “Once initial reports showed that things weren’t as bad as first believed, things sold off. Whether natural gas can hold up again tomorrow [Tuesday] remains to be seen, but more and more it looks like this could be the best gift to producers of the last few years. Nice inflated prices you can sell and lock in a fantastic profit.”

As for whether this cues the bears to step in, the broker said he would probably hold off on that right now. “Would I say go outright short on the speculative position? No, that’s for the brave at the moment because as we learned under Hurricane Ivan, it is going to take a couple of days to figure out what the situation with all of the pipelines is. One problem for natural gas prices is the fact that natural gas doesn’t have a Strategic Petroleum Reserve like crude. Crude was only up a buck because reserves can be released from the SPR, which Bush is likely to do.”

The broker noted that he was surprised prices weren’t even higher in some places. “Eight major refineries were out and the entire Gulf production was shut-in, and all gasoline was up at the end of it was 13 cents,” he said. “I think that’s a sign of a structurally shaky market in terms of the bull case. Going over to natural gas, sure it held the gains a little more, but you have to remember futures had to deal with the [Henry Hub] force majeure and the fact that it was the last trading day for September. However, once we got news around 1 p.m. EDT when we had that first report that refineries weren’t seeing significant damage, everything sold off pretty hard until the final short-covering rally.”

Due to Katrina, Sabine Pipe Line on Sunday was forced to shut down operations and call a force majeure at the Henry Hub for the safety of its personnel and facilities. The company reopened the Hub on Monday and lifted the force majeure, stating that it “avoided significant damage.”

Katrina is also likely to cause greater production losses than Hurricane Ivan which followed a similar path northward before making landfall near Mobile Bay. Four and-a-half months after Ivan’s landfall the Minerals Management Service estimated that 135,756 bbl/d of oil and about 489 MMcf/d of natural gas production remained shut-in. Cumulative shut in production as of Jan. 31, 2005 was 41.95 million bbl of oil (7% of annual Gulf production) and 165.8 Bcf of natural gas (3.7% of annual Gulf supply at the time).

Noncommercials may want to improve their weather forecasting. The Commodity Futures Trading Commission reported that as of August 23, noncommercial natural gas traders held a net short position of 5,050 contracts, up sharply from a nearly flat position the week earlier.

©Copyright 2005Intelligence 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.