Flat to lower prices at a few scattered points remained the exceptions in an otherwise bullish market Thursday. This time cash numbers could claim support from a prior-day screen gain of 40.3 cents, along with continuing concern about Hurricane Katrina shut-ins and winter supplies, in offsetting weaker weather-driven demand.

Nearly all increases were in double digits, but ranged overall from about a nickel to more than 80 cents. Many of the smaller gains, along with a couple of small declines, were concentrated in the Midcontinent and San Juan/Pacific Northwest markets.

Florida Gas Transmission Zone 3 stood out with a solo plunge of about 65 cents, even though it repeated Wednesday’s top quote of $14 Thursday. The pipeline signaled improving linepack conditions under an Overage Alert Day notice by loosening the negative imbalance tolerance to a near-negligible 25% (see Transportation Notes).

The market’s general advance continued unabated despite weakening weather fundamentals in several market areas. A cold front has lowered Friday’s forecast highs into the 70s in the Midwest and Northeast, and even much of the Southeast was not expected to get above the high 80s. In the West, only limited portions of the desert Southwest are expected to deviate from cool to moderate regional conditions.

Intrastate Texas remained a bastion of air conditioning load, as evidenced by gains of 65 cents or more at Katy, Houston Ship Channel and Waha. But even the Lone Star state is due for a cooldown by the weekend as a cold front moves southward from the Midcontinent.

The Energy Information Administration exceeded virtually all prior expectations in reporting a storage injection of 89 Bcf for the week ending Sept. 9. But following the initial negative reaction that could have been expected at Nymex, the screen rallied in the afternoon to end the day up 17 cents. The October natural gas contract diverged from the petroleum-based futures complex, which weakened Thursday following strong gains Wednesday based on a larger-than-expected drop in crude oil inventories last week.

Reflecting a limited return toward normalcy in the Gulf Coast, the Producing Region was credited with a build of 22 Bcf after recording a net withdrawal of 6 Bcf in the previous week’s report.

The recovery of Gulf of Mexico (GOM) production outages from Hurricane Katrina continued to creep along. Minerals Management Service (MMS) said a little more than 107 MMcf/d had come online since its Wednesday report, leaving remaining shut-ins at 3,410.84 MMcf/d Thursday (see related story). Cumulative deferred production since Aug. 26 reached 102.405 Bcf Thursday, equivalent to 2.806% of the normal 3.65 Tcf yearly production of GOM gas, MMS said.

The outlook for Friday’s pricing was murky. Moderate weather forecasts, the large storage build and a weekend’s typical loss of industrial load argued for softening, as did a sense that three straight days of mostly major gains (following Monday’s softening) in the face of fundamental weakness meant the physical market was overbought, one source said. On the other hand, the new futures advance Thursday and persistent concerns about Katrina shut-ins aggravating a tight supply situation this winter could buoy quotes once again, another pointed out.

A Midcontinent producer saw one sign of Friday softness: regional gas prices started high but fell big-time because of lower electricity prices as power generators cut back on gas purchases, he said. He reported selling into OGT at $9.60 early but said he could have bought the gas back for as little as $8.75 near the end of trading. He had the sense that most current purchases are for working storage spread; you can buy for injections now more cheaply than next month, according to the screen, he said.

“We’re all shaking our heads” about the Nymex rebound after a clearly bearish storage report, the producer continued. Futures traders always seem to find something to worry about, he said. Yes, a lot of offshore gas is still shut in, he acknowledged, but people should also look at the demand side. A lot of chemical plants, refineries and other big gas users are shut down for the indefinite future in southern Louisiana and Mississippi, he said. Also, the Entergy electric utility must have cut back substantially on its gas buying because so much of its service territory remains without power, he added.

The producer ticked off two reasons why gas prices “must come off” in the fairly near future: “the credit situation is getting serious” for many of the market’s smaller players, and demand destruction will only get worse the longer gas prices stay high. “Pretty soon a lot of people won’t be able to afford natural gas,” he said, noting that his company has seen several industrials close in the Midcontinent because their gas bills were too high, and it looks like more will follow.

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