Reports of the Lehman Brothers implosion, the purchase of Merrill Lynch, the freefall of the Dow Index and petroleum contract values and concerns over Hurricane Ike damage and shut-ins all added up wide swings for natural gas futures on Monday. After pressing support at $7 in early trade, the prompt-month shot violently higher to a high of $7.840 just after noon EDT before evening out in the end at $7.374, up less than a penny from Friday’s close.

Even though natural gas futures finished virtually unchanged on the day, the result was viewed as bullish by some market watchers when the performance of the rest of the energy sector was taken into account. October crude shaved $5.47/bbl on the day to close at $95.71/bbl while October heating oil dropped 14.79 cents/gallon to close at $2.7912/gallon.

One broker said the break between the price action in natural gas and that of other energy contracts did not surprise him in the least. “Looking at the activity over the last six months, you have to remember that the natural gas sector was the only energy that ‘kept its head’ on the way up,” said Steve Blair, a broker with Rafferty Technical Research in New York. “It really stayed part of a supply/demand equation on the way up, while petroleum contracts shot higher. So it makes perfect sense that on the way down, the petroleum contracts are collapsing in large chunks while natural gas is taking a more measured approach.

“Everyone was taken by surprise by that noon rally in natural gas. There are a number of offered explanations out there, but I think part of it was some pretty good short-covering,” he added. “There was a silly story out there that it was utility buying for the winter, but that does not make much sense to me. I think there was some bargain hunting down around that $7 support. I think all of the Wall Street difficulties played into the move lower this morning, but when the market could not get any lower it started moving higher with some short-covering and new length coming in. I don’t think the noontime jump in prices was related to the Lehman Brothers fallout. Unless Lehman was short in some proprietary accounts and they had to get out, I don’t think that situation contributed to the bump higher.”

Blair noted that natural gas futures remain “comfortable” in the $7 to $7.800 range. “While we are seeing a lot of gas shut in from the storm season, the temperatures…at least in the East, were much more mild than a normal August, so the natural gas storage situation is still comfortable,” he said. “It will be important to watch the next few storage reports, but as of right now we are comfortable.”

While preliminary reports show minimal damage from Hurricane Ike (see related story), the industry is waiting to see how long the shut-ins will continue. On Friday Sabine Pipe Line shut-down all facilities connected to Sabine and issued a force majeure declaration. Nymex quickly followed issuing a force majeure of its own Saturday with respect to remaining delivery obligations for not only the September 2008 natural gas futures contract but also any August 2008 contract obligations that were affected by Hurricane Gustav and carried over into September.

Focusing on the tropics, it appears energy companies can concentrate on assessment and repairs as the satellite currently shows quiet seas. “A scan of the Atlantic Basin Monday reveals nothing of consequence,” said John Kocet, a senior meteorologist with AccuWeather.com. “The few tropical waves that exist do not have the support needed for further development. So the tropical Atlantic will remain at ease this week and probably into next week as well. After this break, there may be another upturn in tropical activity during late September and early October.”

On the temperature front, the meteorologist noted that the long march toward winter has officially begun. “Yes my friends, it’s all downhill from here,” Kocet said. “The Northern Hemisphere is losing the benefits of strong solar heating and will rapidly cool as it always does this time of year. Far to the north in arctic regions, temperatures have already slid into the single digits. At mid-latitudes, the average temperature is dropping approximately 3 degrees every 10 days. This doesn’t happen at a consistent rate, though. More often than not there are big swings in temperature this time of year as much cooler air masses from the north battle against still very warm air to the south. The warm air puts up a good front for a while but always gives in at the end.”

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