Despite record levels of natural gas in underground storage caverns, cash market averages on Tuesday for Wednesday delivery continued to push higher with most points gaining 40 to 50 cents. However, the prior-day 26.9-cent November futures increase that supported Tuesday’s cash move will be missing Wednesday as the prompt-month contract dropped 10.7 cents on Tuesday to $4.880.

While all liquid price points were up by at least 30 cents on Tuesday, a few 50-cent-plus gains were sprinkled through most regions except for the Gulf Coast and the West, which topped out with additions in the mid-40-cent area.

Like the rest of the country, Midcontinent cash points for Wednesday flow added to the 50- to 65-cent additions that were recorded for flow-day Tuesday, which left some market participants wondering where all of the strength was coming from.

“Prices have been really strong relative to what we would expect this time of year. Things are definitely strange out there right now,” said a Midcontinent utility trader. “It might be a result of some cooler weather and people taking advantage of the last month of storage injection season. Maybe a lot of people started the month short as they were thinking prices were going to come off. It seems like there is a lot of activity out there every morning.”

The trader noted that rising prices are especially strange considering the current storage predicament. “With so much gas in the ground, we’re running out of places to put the stuff. Maybe we’ll be stuffing couch cushions and empty garage space next,” he joked. “That said, people can obviously bring the gas out. On ANR, basically everyone has to have all of their interruptible storage out by the 15th. Most of them have pretty well eliminated anymore injections. Everything is now ear-marked for all of the firm storage that needs to get in if it is not there already.”

As to whether the current run of strong prices can continue, the trader said he believes the industry is in a “wait and see” mode. “Prices are not trading too high above the variable cost of transport. The gates on Tennessee are delivering gas from Canada. It’s not coming from the Gulf of Mexico to speak off because of the variable costs of fuel. It does not pay to get it there so it lands over where the thing is trading. The New York markets have been really active. A lot of the stuff gets done early and the price keeps moving up. I think a lot of this is a function of the screen, which has also been strong the last few sessions. This is part of what we do. Sometimes we try to make the market and other times we’re just trying to take it.”

Other market watchers note that some fundamentals have been turning in favor of the bulls over the past few weeks.

“The most important driver of U.S. onshore gas production capacity is the behavior of the U.S. gas rig count several months earlier,” said Stephen Smith of Stephen Smith Energy Associates. “The most important driver of the gas rig count is, on a lagged basis…the price of gas.” Noting that the gas rig count has ticked higher over the past few weeks, Smith said, “Oil and [gas] drillers, not timid by nature, sense that a price bottom is imminent, and some have elected to secure rigs at the day rate bottom in advance of the gas price recovery.”

However, Smith warned that “too much gas” could cause a problem this fall. “In such an environment, when demand load weakens sharply on a mild fall Friday, some producers may be left with the option of either tracking load with temporary production cuts, or occasionally selling gas into a cash market at $2.50/MMBtu or less (which has happened on three of the last six Fridays),” he said.

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