The September aftermarket opened with cash quotes continuing to move higher at a large majority of points Wednesday, but hints were surfacing that this week’s Hurricane Katrina-inspired bull run may have run its course. A modest recovery from massive offshore production outages had begun, and although the near-term Gulf of Mexico (GOM) supply picture remained murky, there were some perceptions that things might not be as bad as they had appeared as recently as Tuesday.

Although it spent the early morning in positive territory, the screen added to the feeling that cash prices may have peaked by trading downward later to $11.472 for an eventual daily settlement loss of 18.7 cents. Nymex’s crude oil and heating oil contracts also softened following government inventory reports that saw a rise in distillates (which include heating oil) and generally less bearish declines in crude and unleaded gasoline stocks than expected. However, unleaded gasoline futures continued to pad their record-setting heights.

Yet another signal of a potential price downturn by the holiday weekend, if not on Thursday, came from several scattered points recording declines of up to about half a dollar, along with a few others that were flat to less than a dime higher. However, most points rose anywhere from about a dime to about a dollar and a half, with Florida Gas Transmission Zone 1 a standout with a spike of about $2.25.

FGT Zone 1 is the pipeline’s only segment largely free of significant supply constraints prompted by Katrina.

The remnants of Katrina were dampening power generation load in the Northeast late Wednesday, while a cold front would be doing the same for the Midwest Thursday. Hotter weather was returning in the South, but widespread power outages in the area were being resolved only slowly and thus keeping a lid on any new air conditioning load for gas.

High temperatures remained the watchword for the Southwest, but demand there was mitigated somewhat by the fact that all Palo Verde nuclear units were essentially back to full operations after the week began with two of them down. Weather was due to remain moderate in the upper half of the West.

Despite some indications that the GOM near-term supply outlook wasn’t as poor as feared earlier, power outages, communication problems, a lack of sufficient helicopters and reports of missing or adrift drilling rigs complicated the process of damage assessment (see related stories). Pipelines with offshore connections continued to update their situations (see Transportation Notes).

The Minerals Management Service said offshore shut-ins had fallen to 8.35 Bcf/d Wednesday from the 8.79 Bcf/d reported on the previous day (see related story). Oil shut-ins also were reduced, but the agency said GOM supplies were still down from normal by 83% (gas) and 91% (oil).

Tropical Depression 13 was able to regenerate between Bermuda and the Azores but posed no threat to land anywhere, much less to Katrina-devastated GOM production. The depression’s center was about 890 miles east-southeast of Bermuda Wednesday morning and moving northeastward at nearly 13 mph.

The National Weather Service predicts above normal temperatures for the Northeast, Midwest, Upper Plains, Midcontinent and Southwest during Labor Day and the Sept. 6-9 workweek. The only area where it looks for below normal readings is in Florida, the southern half of Georgia and southeast Alabama.

A Gulf Coast producer said there weren’t enough hours in the day to recite all the problems his company has had in dealing with Katrina’s impact. Cash basis from Henry Hub to New England citygates was running about $1.30 Wednesday, which would normally cover variable transport costs easily and allow a nice extra margin to boot, he said, but very little is flowing from the Gulf Coast. Exacerbating the situation is the fact that “information is so scarce, and people [including pipelines] are reluctant to share it,” so a lot of the current supply problems will take a long time to work out, he added.

Most Northeast demand this week is being covered either by storage withdrawals or with Canadian supplies, and there’s no telling when that situation could change, he said. “If you wanted to pull Dominion storage now, you could have sold it for around $13.20 today [Wednesday] and buy the October futures contract for a dollar less,” the producer suggested.

Noting that Katrina was a major distraction from normal bidweek business, he said he was unaware of anything still being traded for September baseload Wednesday. He echoed similar comments from other producers in saying the hurricane outages “kept us from activating transportation for a lot of September supplies, especially on Tennessee’s 500 and 800 legs, because we have no idea when the gas will be able to start flowing.” Wryly he observed that it seems in recent years that hassles are always developing during hurricane season and on through the winter, “so it’s hard to go on vacation any more except maybe in the spring shoulder months.”

A Midwestern marketer reported experiencing “a snafu” in purchasing bidweek gas, saying “some gas got sold out from under us.” The company finally covered its needs at the MichCon citygate, but she said Consumers Energy deliveries were a harder issue to solve. Upper Midwest temperatures will be rather bearish for gas prices in the low 70s through the weekend, she said.

An industrial end-user said her company’s plant in Louisiana’s Mississippi River Corridor was shut down for a while due to the hurricane’s passage, but operations were restored by Wednesday and she was able to secure September baseload supplies for it. Production in the Gulf Coast “seems to be coming back slowly,” she said.

Analyst Lindsey Bosak of Global Insight said hot temperatures have continued this week, “with every region in the country posting above-normal CDDs [cooling degree days]. Far more important than CDDs, however, is the impact of Hurricane Katrina on gas markets. Katrina has caused shut-ins of most production in the Gulf of Mexico, where the amount of damage to offshore natural gas production units is still unknown.” Contrary to some expectations of a very low storage build to be reported next week, Bosak added, “Taking into account the effects of Katrina and hot temperatures across the entire country, we are expecting a storage injection of 60 Bcf for the week ending Sept. 2.”

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