The consensus Tuesday had seemed to be that a new cash price rally was unlikely this week, if not through the end of the month, because of a trio of bearish influences: mild weather in most regions, great comfort with current storage levels, and the lack of any tropical storm activity that could possibly disrupt offshore production.

Thus more than a few traders no doubt were surprised when a large majority of points recorded at least moderate advances Wednesday, with many gains reaching double digits. All backsliding numbers were in the West, although that region and the Midcontinent had several points that were flat to slightly higher.

A couple of sources agreed that it was difficult to see how the physical market in the East could ignore its generally weak outlook and achieve Wednesday’s upticks, which ran as high as about 15 cents in Appalachia and the Northeast. It certainly wasn’t getting any support from natural gas futures, which followed up Tuesday’s half-cent loss with a minuscule gain just shy of a penny Wednesday after wavering on either side of flat throughout the day.

Ah, but maybe the key was further strength in the crude oil market, said a Northeast marketer. The September crude contract at Nymex racked up new price records again Wednesday, settling up 52 cents to $47.27/bbl after hitting an intraday high of $47.45. The continued rise was attributed primarily to reports Wednesday morning of declines last week in U.S. crude and gasoline inventories. There was some thought that the news of Iraqi rebel cleric Muqtada al-Sadr agreeing to end his militia’s occupation of a holy shrine in Najaf, Iraq might quell some supply worries and force oil prices to retreat, but crude futures rose further after the announcement. News reports said oil traders were skeptical of al-Sadr’s intentions after being misled by him in the past.

The Northeast marketer said he had expected further price softness, but had a couple of suggestions about what was behind Wednesday’s rebounds. A couple of pipelines have recently lifted restrictions on imbalance paybacks, so people may have bought gas to reduce their due-pipeline imbalances in advance of the usual end-of-month crush, he said. Also, there may be a little bit of tie-in with the crude oil market’s continuing to raise the price record bar higher each day, he added. If they haven’t already met, fuel oil is getting close to price parity with natural gas at the burnertip, “so there may be some electric generators switching fuels to gas” because they sense crude’s strength will keep raising the cost of fuel oil, he said.

A Calgary-based producer said he didn’t know why prices rallied, but maybe it was “because power prices are hanging in there.” Storage certainly couldn’t have contributed to the gains, he went on, because he was hearing estimations of injections on either side of 80 Bcf for Thursday morning’s storage report, which would further increase surpluses to last year and the five-year average. He noted a potentially bearish development early next week for western markets: an estimated 150 MMcf/d at Westcoast’s Fort Nelson Plant will come back into the market Tuesday when annual plant turnaround is scheduled to end.

In a sign that the restoration of power in areas of Florida struck hardest by Hurricane Charley is starting to have an effect on gas demand in the state, Florida Gas Transmission issued an Overage Alert Day notice Wednesday, its first since ending one last Friday.

Former Hurricane Danielle weakened to a tropical storm Wednesday and was becoming poorly organized, the National Hurricane Center said. It was staying far away from North America with a north-northeast tracking. Otherwise the Atlantic tropical scene was quiet.

©Copyright 2004 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.