Erasing the past three days of losses in one fell swoop, October natural gas futures went out with a bang on Tuesday, expiring up 46.1 cents at $5.723. Many industry watchers attributed the skyrocket higher to longer than expected Hurricane Ivan-related shut-ins in the Gulf of Mexico (see related story) as well as sympathy with November crude futures, which notched a $50.20/bbl high on the day. Volume was especially heavy on the day as 108,953 contracts changed hands.

After gapping higher at the open due to aggressive Access trading overnight Monday, October natural gas futures steadily climbed for the remainder of the session. Just prior to expiration, the contract found resistance three times at the $5.78 high on the day. The up day easily erased Thursday, Friday and Monday’s losses of 6.5 cents, 17.2 cents and 13 cents, respectively. As the new prompt month, the November contract on Tuesday also enjoyed a 42-cent increase to close at $6.351.

“The natural gas market surged on a wave of short-covering on Tuesday, as traders reacted to crude oil going through the $50 mark, with gains underscoring worries that some production remains shut in due to Hurricane Ivan,” said Tim Evan of IFR Energy Services. Talking on November, Evans said, “The reversal to the upside has cleared both failed support at $6.08-6.09 and the expected opposition in the $6.25 area, to suggest a more complete review of last week’s $6.415 top.”

He noted that a breakout beyond that level seems likely to clear the $6.45-6.46 highs from mid-August as well, adding that prices may eat into some of the congestion leading up to the $6.94 contract high from back in May instead.

“The bounce also puts the $5.90 low from Monday on the map as key support going forward, combining elements of the failed resistance at $5.85-5.92 into a more focused knot,” Evans said. “A reversal back below that level would now confirm a larger-scale top, with more price action involved to rival the early September work in the $5.40-5.92 range in scope.”

Acknowledging that Tuesday’s price action is now at odds with his view that storage data for last week will be a relatively neutral 70-80 Bcf net injection and that a return to a surplus is likely going forward, Evans said “we can’t expect daily affirmation of our intermediate-term fundamental point of view. It may just take a bit more time and some further fundamental evidence that the market remains in a surplus before prices can trend lower smoothly.”

Citigroup’s Kyle Cooper said he is looking for a build between 68 and 78 Bcf. “This week will obviously still be impacted by the production cuts from Ivan,” he said. “The delay in restoring production has tempered our bearishness. However, inventories remain on track to exceed 3,200 Bcf by late October or early November.”

Whatever Thursday morning’s natural gas storage report for the week ended Sept. 24 reveals, it will be compared to last year’s 101 Bcf injection and the five-year average build for the week of 74 Bcf.

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