Continuing its climb for the sixth day in a row yesterday onhurricane news and hot weather in the Northeast andMidcontinent/Midwest, September gas futures posted a 6.1-cent gainand ended the regular trading session at $4.409/MMBtu. The Octobercontract posted a 6.6 cent gain to $4.410 and November added 6cents to close at $4.450. Volume was 67,152.

Futures gapped higher on the open as traders were greeted by thenews that in addition to Hurricane Alberto, there were two morestorms organizing in the western Atlantic and Gulf of Mexico. TheNational Hurricane Center (NHC) began tracking a “well-organized”tropical wave located over the Yucatan Peninsula that had a chanceof strengthening into a tropical depression as it moved back overthe warm Gulf of Mexico waters. By 5 p.m., NHC said the developmentof the wave was being hindered, however, by its proximity to land.Additionally, the NHC also started following another tropical wavelocated east of the Bahamas. As of 3:15 p.m., the small lowpressure area about 325 miles east of Cape Canaveral lackedorganized storm activity but still could develop into a tropicaldepression or tropical storm, NHC said.

“There is just too much uncertainty in this market to be short,”Ed Kennedy of Miami-based Pioneer Futures said yesterday morning.”There are three systems out there and that has got all the naturalsellers frozen in the headlights.” At 11:48 a.m. (EST) theSeptember contract was up 11.2 cents at $4.46.

“It’s the whole idea of the hurricane season building in a moregeneric storm premium,” said a futures analyst. “That’s part of thestory here. Part of the story also is the heat.” The hot weathercooking the Midcontinent, Midwest and Northeast could mean less gasavailable for desperately needed storage injections.

“It may be the last week of progress against the year-on-yeardeficit because temperatures this week are higher and forecasts fornext week include above-normal temperatures for much of the nationwith readings that are much above normal in parts of the northernPlains and Midwest,” the futures analyst added. “That suggests weare going to have strong air conditioning demand and limitedavailability to go into storage.

“Probably the strongest bullish fundamental support behind thismarket is simply the calendar,” he said. “It’s August. We have abig storage deficit, and there’s really no way we can make majorprogress against that deficit. And we have to price in the factthat we are going to start the heating season with much less thanthe 3 Tcf average. Let’s say we go into the heating season with a420 Bcf deficit [It’s currently 376 Bcf]. We are going to be rightaround 2.6 Tcf, a record low for AGA numbers entering winter.” Theanalyst predicts the AGA report will show between 50 and 65 Bcf ininjections for last week, which would be slightly more than the 45Bcf during the same week last year.

“I expect a build of between 59 and 69 Bcf with a bias towardthe lower end of that range,” said Kyle Cooper, a futures analystwith Salomon Smith Barney. “Longer term I think that is verybullish. But I think a number with a six on it probably brings themarket down a little bit in the short term.”

Futures began to backtrack from daily highs yesterday afternoonand Salomon Smith Barney meteorologist Jon Davis said he doesn’tsee any of the storm systems having much of a chance of reachingthe producing areas — even the storm in the Bay of Campeche,which is more likely to head into central Mexico, Cooper noted.

“I think the market would be healthier and better off in theintermediate term if it would go ahead and allow a downwardcorrection in price to run its course,” said Tim Evans of Pegasus.Evans said he is expecting the September contract to retrace to$4.205. In the short term, the market looks “moderately over-boughtright now,” he said. “The scary thing is that from last Tuesday’slow to this Tuesday’s high you added 72 cents. That’s a lot. Even a50% retracement of just that last leg up — I’m not even measuringit from the prior week’s low, which was the low trade for the move— a 50% retracement is a 36-cent hickey.”

“I think $4 is the lower limit of what I think is possible. Thatwould essentially mean retesting the breakout level. I think if youdo see that level again, it’s not going to stay there for very long[before it comes back up].” The life-of-contract high on Septemberis $4.62 and $4.667 is the all-time high for near-month futures —set in June. “There’s a potential we could flirt with those numbersbut I don’t think we’re quite ready to sustain those levels,” Evansadded. “I think the price action is a bit ahead of the fundamentalsat this point. I don’t think people buying the futures in the $4.40area are wrong; I just think they may be early and they may have toendure a little bit of pain before they are proven right.”

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