Expiring October Natgas Futures Notch Record Settle on Short-Covering, Bullish News - According to NGI.

DULLES, Va. -- October natural gas futures exploded higher on Wednesday as massive short-covering entered the market ahead of the contract's expiration at 2:30 p.m. EDT. While the prompt month was in the positive all day, it jumped significantly higher in the last 30 minutes of trading to notch a new record high of $14.80, before expiring at a prompt-month record settle of $13.907, up $1.251 on the day.

There was no lack of bullish news for the energy complex to digest. The Minerals Management Service said Wednesday that natural gas shut-ins in the Gulf of Mexico from the two hurricanes actually increased from Tuesday's 7.856 Bcf/d to 8.027 Bcf/d, leaving approximately 80% of the Gulf's natural gas production offline.

At the same time, the Natural Gas Supply Association (NGSA) released its latest winter outlook Wednesday, which predicted there will be no gas "shortages" for firm customers this winter. However, that same outlook warned that consumers should still be concerned about winter gas prices, noting that the cost of the gas that was put into storage for this winter is about $2.35/MMBtu higher than gas stored for last winter.

The petroleum futures complex recorded big gains as well on Wednesday. November crude closed $1.28 higher at $66.35/bbl, while October unleaded gasoline gained a whopping 17.29 cents to settle at $2.3393/gallon.

Nymex, which uses a weighted average of the trades done during the last two minutes of trading on a regular trading session, uses the last 30 minutes of trading to calculate the final settlement on expiration day. In the last half hour of natural gas trading Wednesday, the expiring October contract increased 95 cents.

"I am at a loss for words," said Tom Saal of Commercial brokerage Corp. in Miami. "This is an expiring contract, so I think what we really saw Wednesday was massive short-covering. I think the funds, locals and commercial traders were buying back their short hedges."

As for the bullish MMS report, Saal said he didn't think it affected the expiring prompt month very much. "While the MMS shut-in report was bullish, I don't think that contributed much to October," he said. "That contract expired Wednesday, so trading in it was just a matter of people getting out of their positions. Some of the other months were pretty strong as well, so that is going to take hold."

Taking over as the new prompt month, November natural gas finished Wednesday's regular session 98 cents higher at $14.10, while January and February of 2006 finished higher by 83.5 and 80.5 cents, respectively, at $14.875 and $14.665.

Adding strength on Wednesday, Saal said Nymex's force majeure on the Henry Hub October standardized contract was also a contributor. A force majeure is when a disruptive event beyond the control of a buyer or seller interferes with a party's ability to perform under a contract. Under these conditions, parties have the ability to mutually agree to execute an alternative delivery procedure.

Due to the ongoing force majeure at Sabine Pipe Line's Henry Hub facility near Erath, LA, Nymex said Tuesday that its prior declaration of force majeure relating to all remaining delivery obligations in the September 2005 Nymex Division natural gas futures contract will continue to remain in effect. In addition, the exchange declared force majeure for the October 2005 natural gas contract.

"I think October was going to go higher just because the shorts stuck around too long," Saal added. "As you go through time on an expiring contract, the market gets thinner and thinner and people have to bail at some point."

Looking at the futures market in the near future, Saal said, "If you have to hedge, you just have to go out a month or two on the long side and we will see what happens when the dust settles surrounding all of this hurricane damage."

Tom Saal of Commercial Brokerage will be sharing his expertise at reading the market at one of NGI's very popular workshop sessions December 7-8 at the New York Mercantile Exchange. Joining him will be Ed Kennedy of Commercial Brokerage and long time floor trader and market-mover Sandy "Trot" Goldfarb, who will share how he views the gas futures market in both the short- and long-run.

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Intelligence Press Inc. is an independent publishing company and has been serving the energy industry since 1981 with leading news and price survey reports for the natural gas market in its publications: Natural Gas Intelligence, Daily Gas Price Index, Weekly Gas Price Index and Power Market Today.

The publisher runs real-time news on natural gas and power market developments at http://intelligencepress.com. Additionally, the company, commonly identified by its flagship weekly newsletter, Natural Gas Intelligence or NGI, publishes natural gas infrastructure and storage maps. NGI also hosts GasMart, www.gasmart.com, now in its 20th year -- for the natural gas industry, and natural gas futures price workshops at NYMEX.

About the Natural Gas Futures Price Workshop

Where's the market going? And what can you do about it? These questions and more will be answered by experts who will be taking time off from active natural gas futures trading, in a repeat of their very popular futures workshop, at the New York Mercantile Exchange (NYMEX) December 7-8, 2005. For more information go to http://gasmart.com/workshop.