After looking like the rally of last week was stifled by Friday’s nearly 30-cent decline, October natural gas futures showed renewed strength on Monday as the contract popped back above $3 to record a high on the day of $3.375 before closing out the regular session at $3.297, up 33.7 cents — 11% — from Friday’s finish.

“I think last Friday’s session along with Monday’s action is a sign that buyers are finally waking up from the stupor they have been in,” said a Washington, DC-based broker. “These guys are coming to the realization that sub-$3 gas is a steal! We know this thing is not going under zero, so I think nerves finally got the best of people. The industry is realizing that they would have to been out of their mind not to jump on this thing at sub-$3 prices, because it is really cheap.

“I think on the way down from $13.69 to $2.40 there was a real sense of despair that set in on buyers as prices dipped below $3. At the time it wasn’t hard to believe that we were going to see a $1 handle when all was said and done. Technical charts were no help either as they showed a potential objective of $1.65 gas. The buyers ended up waiting and then we get a day like Thursday, where values charge higher on no news. Moves like that get folks jittery, even though short-term traders came in on Friday to take profit.”

The broker noted that he believes traders were doing a lot of thinking following Friday’s session. “Over the weekend, I think people started to get a little concerned about their requirements considering how low the market is. I believe people have started to panic, especially those who have been short from $5 to $7. I think we have a reasonable rally ahead that could bring us back up to $4.30. I’m not saying it is going to happen, but it is a definite possibility.”

Some market watchers think that the weak demand and full storage situations have finally been fully discounted. They claim that the bearish mantra has been exhausted.

“We continue to believe that those factors are yesterday’s news. Yes, they are still true in this market. But after having been discounted for more than a year and more than $11/MMBtu, one has to believe that they have run their course by now and been completely discounted already,” said an East Coast energy consultant.

He pointed out that the 69 Bcf injection reported by the Energy Information Administration last week for the week ending Sept. 4 was slightly less than market expectations, and is “a good sign that supply and demand are working back toward balance. We do have more natural gas in storage than we need, but we have even more heating oil than we have had in recent years, and prices of that are well above their lows for the last 10 months or so.”

The lackluster 2009 Atlantic hurricane season currently looks like an unpromising candidate for supply reduction. AccuWeather.com senior meteorologist Brett Anderson noted that the Atlantic Basin is unusually quiet in terms of tropical activity, especially since the peak date for tropical cyclones in the Atlantic was just a few days ago.

“Other than one tropical wave and the remnants of Fred, there is very little going on across the tropical storm breeding grounds of the Atlantic,” he said. “The main reason for this lack of activity is the large amount of dry, sinking air over the central Atlantic. Stronger-than-normal winds in the upper levels of the atmosphere are also inhibiting tropical cyclone development.”

Economy watchers will be focusing Tuesday on the all-important August retail sales figures for signs of pending improvement in the demand for energy. Expectations are for a 2% monthly gain, well ahead of July’s minus 0.1% showing.

On Friday oilfield services giant Baker Hughes reported that for the week ended Sept. 11 rigs drilling for natural gas in the United States fell by two to 699. A year ago a stout 1,606 rigs were drilling for gas.

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