You could have got a nose bleed watching gas futures yesterday.A 1.5-cent gap higher to $2.700/MMBtu at the opening bell triggereda buying panic that sent October Henry Hub futures up 23.9 cents to$2.851. Estimated volume came in at a massive 116,601 contracts.

Observers attributed the initial gapping move to hurricane fearsbecause the National Hurricane Center said Tropical Storm Floyd wasgaining strength and taking a more westward path yesterday. At5p.m. EDT, the storm was in the eastern Caribbean about 320 mileseast of Barbuda, moving toward the west-northwest at 15 mph with 70mph winds and strengthening. The NHC said the west-northwest pathwas expected to continue through last night, leading some observersto compare the storm with Georges, which squeezed between Cuba andFlorida last year and made it into the Gulf of Mexico causingproduction curtailments.

The hurricane hype was the only clear bullish factor available.Futures got no clear signal from storage injections on Wednesday.The American Gas Association reported injections of 66 Bcf, only afew Bcf off of last week’s build, which at the time was consideredextremely bearish and triggered a price collapse that lasted untillast Friday. Storage inventories currently are at 2,587 Bcf, 120Bcf less than year-ago levels but still 75 Bcf more than thefive-year average.

“Some people said it was the hurricane, some said it was shortcovering. Who knows what the real reason is. But after that openingwe kind of thought it would be a big move,” said an assistant to afloor trader. “With the gap opening, man that must have caught alot of people short.

“Wednesday’s high was $2.685, but it closed toward the bottomend of the range at $2.612 after two days of not being able to fill[a chart] gap. When the market started up after the opening, peoplereally probably started to panic,” he said. “I mean once you havethat island bottom [caused by the chart gap] it is pretty much themost bullish formation you’re going to get. Did I think it wasgoing to be up 25 cents? No, but when you get that kind offormation, you just have to buy them and then leave the ring so youdon’t get caught up in all the hoopla.”

Tim Evans of Thompson Global Markets noted that despite the hugejump October now stands slightly higher than the midpoint betweenits high at $3.15 and last week’s $2.43 low. “Is this theresumption of a long-term uptrend – the momentum of it suggeststhat – or is it just a vigorous upward correction to the middle ofthe recent range?” he asked, tending to buy the latter.

Evans sees the rally “basically as building a hurricane premiumback into the price” and expects some significant price erosion toreturn, with October possibly testing $2.43 again soon unless ahurricane visits the production area.

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