A major price rally that hadn’t seemed to be in the cards as the week began occurred Tuesday. Sources could see little reason for both cash and screen numbers shooting higher other than crude oil futures touching the $50/bbl level Monday and again Tuesday, with record daily settlements being established each day.

Most gas upticks were in double digits, with the overall range stretching from a little under a nickel to nearly 30 cents.

The highest quote of the day was $6.55 at Florida Gas Zone 3, where Florida Gas Transmission had greatly tightened the negative imbalance tolerance under an Overage Alert Day notice (see Transportation Notes). Conversely on the other side of the nation, Tuesday’s smaller increases tended to cluster in the West, with the PG&E citygate seeing the smallest gain of about 3 cents after the California utility issued a high-linepack OFO with zero tolerance for positive imbalances.

It must have been the record oil futures prices that had most of the impact on Tuesday’s advances in the natural gas markets, “because the weather and storage influences are still pretty bearish,” remarked a Gulf Coast producer. He said his company had all of its offshore production online again, but “long-term damage” to infrastructure is hindering the return of other Gulf of Mexico supplies.

Indeed, the Minerals Management Service office in New Orleans once again reported very little progress in restoration of shut-in gas. Based on reports from 23 companies, MMS said 2,340.73 MMcf/d (not including production from destroyed platforms) remained offline Tuesday — barely a 6 MMcf/d gain from Monday. Some producers now see the possibility of Hurricane Ivan-related shut-ins continuing into December (see related story).

A Houston-based marketer agreed that the seeming relentless march of oil to $50-plus levels was about the only significant reason he could think of for natural gas rallies in cash and on the screen (the October contract rose 46.1 cents to go off the board at $5.723). However, he suggested that the unusually slow recovery of shut-in offshore production may have started to reassert itself as a modestly bullish influence, especially with the new suggestions of prolonged production deferments.

For a marketer in the Midwest, Tuesday’s price run-ups — at a time when weak weather and storage inventory fundamentals suggested that softening would continue for some time to come — were “abominable.” She said the head of her company “suspects some manipulation” behind the futures spike. It’s starting to get pretty chilly at night in some northerly sections of the Midwest, the marketer said, so likely some people are starting to turn furnaces on, “although it won’t happen at my house” for a while longer because of high gas prices.

Traders said the screen spike dramatically reversed what had been a downward trend in October bidweek prices through Monday.

A producer observed that first-of-month Henry Hub indexes have had a pretty close correlation to the Nymex settlement; in fact, NGI‘s September Hub index of $5.08 essentially was a spot-on match for the September futures closeout at $5.082. So although the index picture got clouded a bit by October prices rebounding strongly Tuesday after falling a nickel or so Monday, he expects to see the Henry Hub index wind up close to the low to mid $5.70s, or a little more than 60 cents up from September.

Index-negative deals done Monday were turning into index premiums Tuesday, said a marketer. He traded Chicago citygates Tuesday at the NGI index plus as much as 10-15 cents, but said physical basis was fairly weak around minus 10 cents after having averaged plus 0.25 cent for September. Some people are willing to go with index premiums because they see an issue of liquidity with fixed-price deals, he added.

Another marketer failed to see any basis weakness in Michigan, saying she bought a Consumers Power citygate packages at plus 15 cents basis.

The National Weather Service’s forecast for the Oct. 4-8 workweek calls for above normal temperatures in all northern states from Montana’s western border and central Idaho eastward, dipping as far south as Tennessee, northern Georgia and South Carolina as the area approaches the East Coast. The agency looks for below normal readings in western Washington and northwest Oregon, and also in the Southwest stretching from southwest Louisiana into southern Colorado and eastern Arizona. Other parts of the U.S. should be normal, NWS said.

Citigroup analyst Kyle Cooper said his final estimation for this week’s storage report looks for a build between 68 and 78 Bcf.

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