Capping a tumultuous tenure as prompt month, the October contract went out with bang Thursday as two distinct waves of buying were more than sellers could handle. After ratcheting higher throughout the late morning following the news that 67 Bcf worth of gas was injected into storage last week, the prompt month dove lower in the afternoon. But just when it looked as if October would drop below the critical $3.50 mark, market-on-close buyers stepped in. That support, combined with an absence of willing sellers, sent prices through the roof in the last 30 minutes of trading. October settled at $3.686, up 19.2 cents for the session and 26.6 cents above where it was when it took over as prompt contract at Nymex a month ago.

According to the Energy Information Administration, working gas in storage was 2,991 Bcf as of Friday, Sept. 20. This represents a net increase of 67 Bcf from the previous week. Stocks were 134 Bcf higher than last year at this time and 299 Bcf above the five-year average of 2,692 Bcf. In the East Region, stocks were 86 Bcf above the five-year average following net injections of 45 Bcf. Stocks in the Producing Region were 151 Bcf above the five-year average of 709 Bcf after a net injection of 17 Bcf. Stocks in the West Region were 61 Bcf above the five-year average after a net addition of 5 Bcf.

Many market observers expected a net injection of 61-77 Bcf, so the 67 Bcf refill was neutral. However, versus last year’s 93 Bcf build and the injection average of 72 Bcf, the 67 Bcf figure fell on the bullish side. Last Thursday, the market gained 6.9 cents on storage data showing 69 Bcf was injected for the week ending Sept. 13.

Heading into Thursday’s trading session, several traders noted the wide spread between cash and futures prices. The October contract closed at $3.494 Wednesday, more than 25 cents below NGI’s Henry Hub spot price average. And while it is not uncommon for cash and futures prices to diverge during the month, it is very rare for the two markets not to converge at futures expiration. As it turned out, however, the markets did more than converge Thursday. By virtue of the early crash in cash and the late peak in futures, the two markets flip-flopped, leaving the October contract to close at a slight premium to physical prices.

And while things like price convergence and market-on-close buying may dictate the fate of futures on expiration-day, fundamentals hold the key in the longer-term. That being said, traders might want to heed the warning of EOG Resources Inc. CEO Mark Papa, who earlier this week said that production would decline by a whopping 7% this year over last (see Daily GPI, Sept. 25). This prediction increases his early September outlook calling for a decrease in production of 5-6% this year (see Daily GPI, Sept. 6). Reiterating what he said in early September that the North American gas supply was going through changes “not seen in at least 15 years,” Papa also warned that he does not see any relief in 2003 from supply sources from Mexico, Canada or liquefied natural gas (LNG) to make up for the shortfall.

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