Nymex Gas Jumps On Storm Jitters, Buying Trend

Natural gas futures rallied Wednesday, boosted by stormjitters as traders eyed two tropical depressions in the Atlantic that couldaffect energy infrastructure in the U.S. Gulf. In addition, funds were seen buying back previously sold contracts ahead ofpotentially larger price hikes later this month.Near-month October natural gas futures on the New York Mercantile Exchangewere trading about 25 cents or 4% higher at $6.184 a million British thermalunits after opening floor trade at $6.08/MMBtu. The rally was driven by forecasts tracking two tropical depressions. Atropical depression with winds near 35 miles per hour east of the LesserAntilles could become a tropical storm late Wednesday, the National HurricaneCenter predicted.
Tropical Depression 8 was about 1,130 miles east of theLesser Antilles, the NHC said in its 11 a.m. EDT advisory. The depression wasmoving to the west-northwest at 12 miles per hour and was expected tostrengthen into a tropical storm later Wednesday, the NHC said.

Meanwhile, the NHC was tracking Tropical Depression 9 in the northwesternGulf of Mexico, 100 miles south of Freeport, Texas.

Meanwhile, traders and analysts have been observing a buying trend amongspeculative traders over the last few days, that they say is being driven by aneed to compensate for an unusually large number of short positions suchtraders have taken in the market. In particular, funds and other speculativetraders had sold a large number of contracts that they have lately been buyingback, over concern that prices will significantly rise in a rally typical forthis time of year, traders and analysts said.

"Because of the abnormal open interest," many traders are thinking it best to"get out early to avoid a potential squeeze at the end of September," saidGeorge Speicher, a principal with Dow Corp. and director of research forAmbridge Energy in Houston.

Non-commercial traders held 147,246 futures-only short positions in the Nymexnatural gas market as of Aug. 28, according to the Commodity Futures TradingCommission. Such traders remained net short by 63,650 contracts, an increase of4,787 over the previous week. Speculators also were net short in futures andoptions combined, by 75,800 contracts, an increase of 7,257 over the previousweek, according to the CFTC.

One or both approaching Atlantic weather systems could grow into a"formidable" tropical storm headed for U.S. Gulf of Mexico energyinfrastructure, said Ed Kennedy, a managing director with Commercial BrokerageCorp. in Miami. In addition, "we're getting short-covering by funds," he said,which has been driving this week's gas market rally.

The developing tropical weather systems and the prospect of a late-Septemberrally are driving traders to buy back previously sold contracts to protecttheir positions, said Allen Rather, a private analyst in Victoria, Texas.

"I think it sunk into people that the tail-end of this tropical season may bemore active than we think," Rather said. "Why not just take my money and run?"

Rather also agreed that traders are "trying to avoid getting caught in thepre-winter rally that typically happens between the middle of September andmid- to late-October."

Physical natural gas for next-day delivery was also trading higher, with gasat the benchmark Henry Hub up 37 cents at $6.40/MMBtu, compared to earlyTuesday and at Transcontinental Zone 6 in New York 9 cents higher at$6.54/MMBtu, according to the IntercontinentalExchange.