Natural Gas

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Ne parlavamo ditro ed io stamattina: io la penso come te, mentre andrea lo vede ancora più giù...

se non ci fosse di mezzo quel casino sarei entrato a occhi chiusi, ma messa così mi studio gli storici nel weekend , leggo ulteriori news su quello che sta succedendo all'hedge funds e poi settimana prossima si vede. Stavo valutando anche di accoppiare al long sullo spread H-J07 uno short a copertura sullo spread H-J08

 

[ditropan]

Andrea , ciao, scusa ma hai sempre il malloppo long su Ottobre?

Mandi

.. oggi stoppato tutto sul contratto ottobre .... -126.000 $ ... se considero i + 180.000 $ di luglio sono sempre in attivo di 54.000 $ ... peccato che questi maledetti se ne siano rimangiati una buona parte ... ad ogni modo non ho nessun rimpianto, è un'operazione che meritava essere fatta, io poi le ho proprio tentate tutte ... si vede che doveva finire così.

Fanchiulo al gas ... a questo punto li lascio sfogare, per come hanno reagito questa sera è molto probabile che il contratto ottobre si rimangi tutto il carry e torni alle quotazioni di ottobre prima di rimbalzare, io per ora me ne stò fuori e non ricado nella trappola ... il tempo guarirà le ferite.

 

[ditropan]

NATURAL GAS, un poca di casistica e qualche commento :

Il comportamento del gas naturale statisticamente prevede un movimento a salire partendo da agosto-settembre fino a metà ottobre, la motivazione risiede nel fatto che, passata oramai l'estate, ci si concentra sugli approvigionamenti per l'inverno e si è in piena stagione di uragani; questo pone nella condizione che il comportamento dei contratti sul natural gas NGU__, NGV__ per solito sia a salire ... purtroppo non ogni anno fila liscia, anche se ...

Dal 1990 ad oggi (2006) si sono avute solo 3 occasioni in cui il contratto scadenza ottobre sia soltanto sceso ovvero il 1993, 1994 e 2001.
Inoltre, solo in 2 occasioni il contratto è solo sceso senza rimbalzo, ovvero il 1994 ed il 2001, bisogna però tenere anche conto del fatto che il 2001 fù un anno particolare in ci fù il crollo delle torri gemelle e si generò la psicosi che il consumo di carburante sarebbe drasticamente sceso per via del blocco degli aerei e della psicosi di altri attentati ... in quel periodo soffrì un po tutto insomma.
Quindi escludendo il 2001 dal 1990 ad oggi sul contratto ottobre si scese fino a scadenza senza rimbalzo solo nel 1994 ... e quest'anno idem, un bel primato ... non c'è che dire !!!

Sebbene manchino ancora tre sedute alla scadenza del contratto ottobre mi sa tanto che quest'anno si dovrà aggiungere alla casistica dell'anno nero stile 1994 ...

... il pretesto sono le scorte abbondanti (che però sono andato a vedere e sono abbastanza in linea con quelle degli altri anni), la realtà e che quest'anno quel trader americano 32-enne del fondo Amaranth si è messo a 90° con lo spread marzo aprile 2007 e come tutti i grossi speculatori sono venuti a sapere che questi era in difficoltà, a turno se lo sono spolverato per benino nel di dietro !
Vista questa particolare situazione io credo quindi che difficilmente il contratto ottobre rimbalzerà prima della sua scadenza.

tornando a noi e alla casistica, dai grafici sotto riportati notiamo che ... a parte gli anni fortemente direzionali come il 1995, 1996, 2000 ...
(non credo che quest'anno rientri in questa categoria, visto l'andazzo delle scorte, l'assenza di uragani e per come si sono comportate le quotazioni fin'ora)

.... in tutti gli atri casi il comportamento delle quotazioni passata la metà di ottobre successivamente tende sempre a scendere fino al nuovo anno.
Ciò accade in quanto tutto il controvalore assegnato alle quotazioni sotto forma di premium-risk tende via via a scremarsi con l'avvicinarsi della primavera; in pratica le scadenze (consegne) del nuovo anno perdono di valore mano a mano che svaniscono i timori su un'inverno freddo e sulla carenza delle scorte.

... naluralmente un simile comportamento non è detto sia la regola, esistono anche anni anomali come il 2002 e 2003 ... altrimenti sarebbe troppo facile !!!

Nel 2003 ci fù lo spike di una settimana sul contratto gennaio 2004 (gli altri a seguire) a causa di un'interruzione delle forniture, nel 2002 non saprei.

 

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Estimates of Maximum Underground Working Gas Storage Capacity in the
United States

 

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Citadel, Hedge Funds Bet $3 Billion on Gas After Amaranth Falls

By Geoffrey Smith and Matthew Leising

Oct. 16 (Bloomberg) -- Citadel Investment Group LLC, the $12 billion hedge fund manager, T. Boone Pickens and the Merchant Commodity fund expect natural gas to rebound from a historic losing streak.

Hedge funds amassed a $3 billion wager on rising prices in New York futures markets as gas plunged 74 percent in the past 10 months, the biggest drop of any commodity. Chicago-based Citadel added to its bet in September by taking over trades from Amaranth Advisers LLC, the hedge fund that's closing after losing $6.5 billion in the gas market.

Demand for gas, used for furnaces and power plants, will outstrip supply as production from U.S. wells declines in 2007, say the chief executive officers of energy producers Devon Energy Corp. and EOG Resources Inc. Natural gas will average $9 per million British thermal units over the next 12 months, says EOG's chief, Mark Papa, up from less than $6 last week.

``If you told me I had to go long or short today, I would go long,'' betting on higher prices, said Pickens, whose Dallas hedge fund is up 120 percent this year. Gas may reach $10 this winter if cold weather depletes inventories, he said on Oct. 11 in New York. He declined to predict when his fund might get back into the gas market after exiting earlier this year.

Natural gas may rise as high as $12 per million Btu by March, said Michael Coleman, founder of Singapore-based Aisling Analytics Pte Ltd., which runs the $386 million Merchant Commodity hedge fund.

Falling Supply

While demand for gas to run power plants is increasing in North America, supply isn't growing, said Michael Morris, chief executive of Columbus, Ohio-based American Electric Power Co., the second-biggest U.S. electricity producer. Prices fell earlier this year after the fifth-warmest winter on record and a cool summer that reduced demand for electricity to run air conditioners.

The amount of gas pumped from U.S. wells is likely to decrease 1 percent this year, and supplies from new wells are declining at a faster rate than five years ago, said David Khani, an oil and gas analyst at Friedman, Billings, Ramsey & Co. analyst in Arlington, Virginia.

Daily U.S. production of natural gas fell to a 12-year low of 49.8 billion cubic feet in 2005 because of damage to plants from hurricanes, according to the U.S. Energy Department.

``The critical part is the production capacity of natural gas wells, and that is flat at best from the past winter,'' Devon Chief Executive Larry Nichols said in a telephone interview. Prices may rise ``dramatically,'' especially if winter is colder than normal, he said. Devon, based in Oklahoma City, is the second-largest independent U.S. natural gas producer.

Amaranth's Book

Demand for natural gas will increase by 3 percent in the U.S. next year because of rising power production needed to support an expanding economy, the government forecasts.

Gas supplies are tightening worldwide. In India, generators that cost $4.4 billion to build are idle because of a shortage of natural gas on the international market. South Korea, Asia's third-largest economy, faces a shortage of liquefied natural gas until at least 2015, forcing utilities to purchase alternative oil-based fuels, the government projects.

When Citadel and Amaranth's broker, JPMorgan Chase & Co., took over trades that led to the biggest-ever hedge fund loss, they saw potential for profit in owning gas, said Jim Duncan, an energy analyst in Houston at ConocoPhillips, the third-largest U.S. oil company.

``I'm sure there are Amaranth positions that are in the money now,'' he said.

Amaranth expected prices to rise for natural gas to be delivered this winter and executed that strategy with a so-called spread trade, buying March gas and selling April futures. The seller of a futures contract has an obligation to deliver a commodity to the buyer at predetermined date at the set price.

`Wishful Thinking'

March is the last month of the so-called winter heating season, so that contract is usually more expensive. After March, furnace use drops off, and utilities replenish the inventories they tapped in winter.

Gas for this coming winter plunged as much as 30 percent in September as it became clear that supplies in underground storage would be at record levels to start this winter.

The decline in the gas market reached a ``crescendo'' as Amaranth collapsed, said Michael Rose, director of the trading desk at Angus Jackson Inc., a broker in Fort Lauderdale, Florida. ``We should be looking down here for places to buy it,'' he said. ``To think that we're going to go much lower is wishful thinking.''

2001 All Over

Hedge funds are anticipating a turnaround. The long positions held by speculators surged to a record 145,386 contracts this month, having more than tripled since the end of last year, according to data from the U.S. Commodity Futures Trading Commission. Short positions, bets on falling prices, haven't risen as fast.

The number of futures bought outnumbers those sold by 46,873 contracts as of Oct. 3, the most since 1999. Speculators started this year with an equally large bet against natural gas. Commission data don't show what firms are long or short or the timeframe for the positions.

The gas contract nearest delivery dropped 74 percent from a record $15.78 per million British thermal units last December to a low of $4.05 last month. The November contract fell 12 percent last week to $5.659 per million Btu on the New York Mercantile Exchange, and the decline may continue for now, according to traders and analysts surveyed by Bloomberg.

Twelve of 21 traders and analysts, or 57 percent, predicted prices will decline this week, according to the Oct. 13 poll. Six said gas prices will rise and three expected little change. The survey has accurately predicted the direction of prices 52 percent of the time since it started in June 2004.

Pricey Gas Deposits

The surge to an all-time high last December, and the decline since then, resembles 2001. Prices climbed to a record above $10 in December 2000 only to slide more than 80 percent to $1.76 the next nine months. A four-year rally followed.

A bet on gas futures prices gets support from the rising prices seen in sales of natural-gas deposits. Oklahoma City-based Riata Energy Inc., led by Tom Ward, the former president of Chesapeake Energy Corp., agreed on Sept. 7 to pay billionaire investor Carl Icahn $1.5 billion for his oil and gas holdings. That was 10 times what Icahn spent for them in 2003.

Ward and Riata are paying the equivalent of $4.84 per million Btu for the proved reserves held by Icahn's company. That's almost two-thirds higher than ConocoPhillips paid Burlington Resources Inc. in a $36 billion deal announced Dec. 12, the day before Nymex gas futures peaked.

GE's Targets

John Schaeffer, who oversees a $2.5 billion portfolio of oil and gas fields at General Electric Co.'s financial services unit, said gas deposits are in demand.

``We're looking for investments in every gas-producing basin in the lower 48 states and the Gulf of Mexico,'' he said in an interview.

The record for U.S. gas prices was set last December as the first hint of cold weather spurred concern about shortages. Gulf of Mexico platforms and pipelines, which can fill as much as 17 percent of U.S. natural gas needs, were devastated by Hurricanes Katrina and Rita in August and September of 2005.

By the end of last winter, warm weather had hurt demand, inventories were rising and prices were sliding. Predictions the 2006 hurricane season would rival last year had helped support gas prices. No storm-related disruptions have occurred this year.

Vega's `Interest'

Papa at EOG Resources said his prediction of $9 average gas prices covers the 12 months starting in November, which the market treats as the beginning of winter. Should prices stay that strong, they would rival the record average of $8.98 for all of 2005.

Hedge fund manager Julian Barrowcliffe, who oversees the $507 million Anglian Commodity Fund at VegaPlus Capital Partners LLC in New York, said this year's swings in prices drove him from the market, and he's now looking to get back in.

``We are watching this market with interest now, waiting to see if it will get back to normal,'' he said.

 

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N.Y. Natural Gas Rises as Cold to Spread Across West Next Week

By Geoffrey Smith

Jan. 4 (Bloomberg) -- Natural gas rose in New York on weather forecasts showing colder air spreading across the western U.S. next week, snapping a four-week trend of higher- than-normal temperatures.

A mass of arctic air is predicted to spill into the Pacific Northwest from Canada by early next week, spreading across the Rockies and reaching the northern Plains and Midwest, government forecasters said. Gas usage is greatest in the Midwest, where about 79 percent of households rely on the fuel for heat.

``We are getting the return of cold air,'' said Edward Kennedy, a broker at Commercial Brokerage Corp. in Miami. ``By the end of next week, it's going to spread to the East. Let's see how cold'' it actually gets, he said.

Gas for February delivery rose 15.2 cents, or 2.5 percent, to $6.315 per million British thermal units at 12:26 p.m. in New York Mercantile Exchange floor trading. The price reached as high as $6.45 earlier. Benchmark futures have dropped 29 percent in the past five weeks.

Meteorologists at the U.S. Climate Prediction Center in Camp Springs, Maryland, predicted that below-average temperatures would stretch from the Pacific Northwest coast to Wisconsin, Minnesota and Iowa from Jan. 9 through 13. That's a change from yesterday, when forecasters saw above-average temperatures persisting across the western U.S. through the middle of the month.

Price, Temperature Uncertainty

Price increases will be tempered by uncertainty over how cold it will get and how long the cold will last, Kennedy said. Because of that, he expects the advance to face resistance at $6.40 and then $6.55, two price points he identified through technical analysis. Technical analysts study price charts and volume graphs for clues to a market's direction.

Temperatures remained mild across the northern U.S., with readings today and tomorrow expected to top seasonal norms by as much as 24 degrees in sections of the northern Plains and Midwest, forecasters at MDA EarthSat Energy Weather said. The eastern half of the U.S. will see much above-average temperatures through Jan. 13, MDA said.

Mild weather last week probably resulted in a smaller-than- average drop in stored supplies of the furnace fuel. Utilities send less of the fuel to customers amid mild weather as households and businesses decrease consumption.

Inventories May Fall

U.S. gas inventories may have fallen by 60 billion cubic feet last week, the median estimate from 17 analysts in a Bloomberg survey. The five-year average is a supply drop of 100 billion, Energy Department data showed. Forecasts ranged from a drop of 44 billion to 82 billion.

There was 3.121 trillion cubic feet of gas in underground storage caverns as of the week ended Dec. 22, a level that's 13 percent above the average for the past five years.

``The annual surplus now stands at 458 billion cubic feet, or 17 percent, above last year, an extraordinary cushion,'' John Kilduff, vice president of risk management at Fimat USA in New York, said in a note today. ``For this reason alone, rallies should only be temporary, until industrial demand kicks in at the end of winter.''

This week's supply report will be issued tomorrow, a day later than usual because of the New Year's holiday. The Energy Department is scheduled to publish it at 10:30 a.m. Washington time.

 

[Fleursdumal]

il natural gas accresce la sua fama di futures killer

BMO gas deal losses soar to $680-million
Duncan Mavin, Financial Post
May 18, 2007

Bank of Montreal's estimated losses from bad natural-gas trades soared to $680-million yesterday as the bank said it is investigating "potential trading irregularities."

The revised estimate for the losses is higher than the bank's revenue from trading activities for the whole of last year which was $655-million, and the bank said there could yet be "subsequent significant gains and losses" related to the portfolio.

Ratings agency Standard & Poors placed BMO on credit watch to reflect heightened concerns about the bank's risk management processes.

"This almost doubles the original estimated pre-tax trading loss of $350-million to $450-million that was announced on April 27, 2007," said Standard & Poor's credit analyst Donald Chu.

BMO also said it is continuing its investigation into the losses and confirmed it has terminated two employees.

The Financial Post first reported two weeks ago that New York-based trader David Lee and executive managing director of commodity products Bob Moore had been let go.

"Since our initial announcement on April 27, BMO and our external advisors have continued to investigate this matter," said BMO chief executive Bill Downe. "This had provided additional insight into the current circumstances," he said,

As first reported by the Financial Post, BMO engaged forensic auditors Deloitte & Touche LLP in February to investigate its natural- gas trading portfolio. In a report to BMO in mid-April, the auditors questioned the valuations provided by BMO's broker, New York-based Optionable Inc.

BMO said it has "increased concerns with the reliability of quotes received from its principal broker."

The bank also confirmed that it has suspended its business with Optionable, which previously received 30% of its revenues directly from BMO.

The brokerage has plummeted into crisis since BMO's initial announcement about the losses. Both the chairman and CEO of Optionable have resigned in the past two weeks. Also, news reports have circulated that former CEO Kevin Cassidy did not properly disclose that he has served jail time for fraud.

Optionable is now also the subject of class-action lawsuits filed on behalf of shareholders who allege wrongdoing at the brokerage, whose share price has plunged more than 90% since BMO first announced its losses.

Optionable is also under investigation by its biggest shareholder, the New York Mercantile Exchange (Nymex).

Executives of the broker sold a 19% stake to Nymex for US$28- million on April 10, just days before BMO received its final report on the trading activity of Mr. Lee from Deloitte.

Nymex said earlier this week that it has pulled its representative from Optionable's board.

Meanwhile, a spokesperson for BMO said employee bonuses "across the organization" will be affected by the losses. The bank is expected to post an adjustment of $120-million related to incentive compensation.

BMO also said that pre-tax first- quarter earnings will be revised downward by $509-million with the remainder of the adjustment to be included in the second-quarter results due out next week. The bank said its Tier 1 capital ratio remains strong and the impact of the losses will be "modest."

 

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BMO losses show that natural gas trading risky business for all
Published: Thursday, May 17, 2007
Canadian Press: DINA O’MEARA

CALGARY (CP) - The huge gas-trading losses that whacked the Bank of Montreal's balance sheet Thursday shows that betting on how the price of gas will swing is like predicting the weather - iffy at best and a disaster at worst.

That's because in North America, when the wind blows cold, prices get hot. And vice-versa.

"You look at the volatility of the weather and you try to translate that into the gas supply, and that's one of the reasons it's such a volatile commodity," said Dennis Elias, with Ziff Energy of Calgary.

Mild weather results in flat demand, high storage and slumping prices, unless supply is disrupted.

Last summer, natural gas prices fell almost 40 per cent on flat demand and plentiful supply, leading most oil and gas producers into dismal first quarters this year.

The vagaries of the market make many producers shun locking in prices for their volumes, also known as hedging, because of the roller-coaster nature of commodities.
Continue Article

It's a game for players who have the size to weather market swings, with smaller producers reluctant to bet their barrels on the unknown, analyst Martin King said.

"If you do hedge and you get it right, you get no reward in your share price," said King, with FirstEnergy Capital Corp. "But if you do hedge and get it wrong, you get absolutely crucified."

More recently, EnCana Corp., one of North America's largest natural gas producers, clocked a $423 million drop in profit in the first quarter on derivatives contracts that hedged in gas prices.

"It's that sort of error that has added to reluctance to locking in volumes," King said. "And to some degree, the hedging activity seems to be dominated by financial players."

But as Bank of Montreal can attest, even huge institutions aren't immune to the power of one. The venerable Canadian bank lost a whopping $680 million - at last count - on trading losses related to natural gas trading by one company.

The bank isn't the first to be burned by traders gone wild; defunct hedge fund Amaranth Advisors LLC recorded a $6-billion loss last September because of a single Calgary-based trader's poor judgment on where natural gas prices are headed.

It's the nature of the business, say experts. Traders' single focus is to create huge upside because that's how they are compensated.

"Trading for a bank, or trading for a hedge fund is being a gladiator," John Stephenson, with First Asset Funds Inc., said from his Toronto office.

"It's an ego business, and the people who are good at it tend to have big egos and are aggressive by nature."

The aggression started flourishing at the turn of the millennium. Before the Foothills and Alliance pipelines debottlenecked Alberta natural gas into U.S. markets, the commodity traded around $1.25 per million cubic feet for years, with 50-cent swings a cause for celebration in quiet trading rooms.

Today, those rooms are called pits for a reason: trading is fierce when supply and demand meet, with natural gas becoming the clean-burning darling of power generation across North America.

Calgary-based Natural Gas Exchange Inc.'s NGX electronic energy market sees 30 billion cubic feet of natural gas traded each day, or about 900 bcf per month.

Trading volumes at the exchange have risen steadily since its inception in the mid-1990s, as the commodity became more attractive to trade in North America, president Peter Krenkle said.

"It's really as a result of the volatility," Krenkle said. "The fact that there is more price movement has resulted in more participants in the market."

Currently 150 authorized companies and about 450 individual traders participate on NGX, one of three main exchanges in North America, including the New York Mercantile Exchange and ICE Intercontinental Exchange.

The increase in players and liquidity adds to the combustible mix, prompting large producers and users such as utilities and industry to hedge and avoid exposure to drastic price swings.

"Volatility is a requirement for hedging instruments, and contracts, and also for the speculators," Krenkle said.

Natural gas prices are affected by many factors - from weather and drilling success in gasfields across North America and global LNG supplies to demand from gas-fired electrical power plants and consumers needing winter heating fuel.

 

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BANK OF MONTREAL'S GAS TRADING SCANDAL
At the heart of BMO's crisis, a 'smart and cautious' trader

SINCLAIR STEWART AND TARA PERKINS

May 18, 2007


Yet questions about his possible role in BMO's trading problem intensified yesterday, after the bank reported that the losses it suffered would be much greater than anticipated - $680-million before tax. BMO also said it would have to restate its first-quarter results. The bank confirmed that Mr. Lee and his boss, Bob Moore, were no longer with the company, and that it had hired a legal firm to help investigate potential "irregularities" in its trading book. Mr. Moore declined to comment.

Mr. Lee, by most accounts, earned his position as BMO's top natural gas trader. Born into a middle-class Italian-American family in New Jersey, he began his career at the Bank of New York.

In 1997, when he was in his mid-20s, he caught a break. BMO, eager to get into the lucrative U.S. commodities business, decided to build its own team from scratch. The bank hired nine for its New York office, including Mr. Lee, who came aboard as an analyst.

Those who worked there said it wasn't long before he distinguished himself. He was made a "backup trader" before becoming a junior trader covering crude oil.

He also became very close friends with Mr. Moore, a former official at Reliant Resources who was brought in to run the commodities operation in 2000 and to help "clean up" another gas options trading mess, according to one former BMO employee. The sources said Mr. Moore and Mr. Lee soon became "buddies," working closely together and often socializing with clients over drinks.

One of the reasons Mr. Lee was hand-picked to take over the scaled-down natural gas trading was because he was seen as smart, devoted, and relatively inexperienced: someone not likely to take chances and create another headache for the bank.

"He was a very nice kid, kind of quiet, and very likeable. I never saw him not work hard," this source said, adding he was a "solid" and skilled trader, though perhaps not the dominant sort that some have made him out to be.

Some co-workers acknowledged that Mr. Lee developed more of a cocksure attitude as his career progressed. It was not uncommon for brokers to take him to concerts, or invite him golfing, say those who worked for BMO.

Yet the soft-spoken trader, who one former co-worked described as "nondescript," cut a contrasting figure to that of his mentor.

"Bob was the boss," one former BMO official said. "He is a loud talker, a my-way-or-the-highway guy."

When Mr. Lee was handed control of the gas business, he began working with Kevin Cassidy, a senior executive at New York-based Optionable Inc., an energy broker. Mr. Cassidy had worked closely with Mr. Lee's predecessor.

The two men quickly became good friends, as did their families, and BMO became, over time, Optionable's most valued client, accounting for some 30 per cent of its trading volume last year. Mr. Moore also had a close relationship with Mr. Cassidy, said people familiar with the matter.

Mr. Cassidy was a "guy's guy - a stereotypical American broker," said someone who knew both Mr. Cassidy and Mr. Lee.

Until recently, Optionable's business prospects looked glowing. Nymex, the commodities exchange, had agreed to invest, and placed a representative on the company's board. When volumes soared, the stock did too - up from about $1 last fall to more than $8 before plunging to less than $1.

Last week, Mr. Cassidy stepped down as Optionable's chief executive officer, amid news reports that he had received jail sentences for fraud and tax evasion.

BMO, which is still trying to unravel what went wrong, has not levelled any accusations at its former traders or at Optionable, but sources within the bank said investigators can't reconcile the books kept daily by BMO traders with the quotes delivered by Optionable at the end of each month. That is an about-face from last month, when the bank pinned the losses on market factors.

"I think you're looking at a pattern of irregularities that doesn't make sense," said one person with knowledge of the probe. "Something is wrong."

Bank of Montreal: Close $69.40, down 30 cents

Optionable: Close $0.71 (U.S.), up 20 cents

 

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Si ritorna a sentir parlare di tempeste e uragani , report della nostra cara jeanin prezioso

DJ US GAS: Futures Rise 4% On Storm Fears, Hot Weather

By Jeanine Prezioso
Of DOW JONES NEWSWIRES


HOUSTON (Dow Jones)--Natural gas futures gained more than 4% Monday as
traders bought back contracts to cover positions amid hot weather across much
of the nation this week and the potential for two Atlantic tropical weather
systems to develop into stronger storms.

Near-month September natural gas futures on the New York Mercantile Exchange
opened floor trade 20 cents higher at $7.02 a million British thermal units
Monday, then traded at a high of $7.12/MMBtu in early morning trading, a gain
of 4.4%.

Traders who guessed prices would fall bought contracts to cover short
positions. The nation is staring down record levels of storage and late-summer
hot weather wasn't expected to eat into the surplus of 2.882 trillion cubic
feet, which is 16.4% higher than the five-year average.

But a strong hurricane that would send oil and gas drillers fleeing from the
U.S. Gulf of Mexico and force production to remain shut in could send prices
higher, analysts and traders said.

The U.S. is entering peak tropical storm season, and the U.S. National
Oceanic and Atmospheric Administration's National Hurricane Center in Miami is
currently tracking Atlantic tropical disturbances, one in the Caribbean and one
off the coast of Africa that have the potential to develop into strong storms
and threaten U.S. Gulf of Mexico energy production.

Speculative traders and hedge funds remained net short in the natural gas
futures market by 65,181 contracts last week, according to the Commodity
Futures Trading Commission.

"Extreme heat, a storm in the (U.S.) Gulf next week and too many shorts make
a bad combination," said a trader.

Demand for gas-fired electricity is expected to remain strong as temperatures
rise into the mid-to-upper 80s and 90 in New York during the first half of the
week. Temperatures in Chicago will remain hot for most of the week, in the
mid-80s to low-90s, according to Matt Rogers, senior energy meteorologist with
EarthSat in Rockville, MD. By next week the weather is expected to cool off in
those cities, he added.

Southern cities from Atlanta to Houston will continue to experience
sweltering heat this week with temperatures rising into the high-90s and
low-100s, Rogers said.

The demand is reflected in spot gas prices. Physical gas for next-day
delivery was trading 60 cents higher at $7.13/MMBtu at the benchmark Henry Hub,
compared to early Friday, while gas at Transcontinental Zone 6 in NY was
trading 63 cents higher at $7.85/MMBtu, according to the
IntercontinentalExchange.

Thundershowers in the Northwest Caribbean over Cuba are moving towards the
U.S. Gulf of Mexico but show no immediate signs of organizing into a stronger
storm though that could change over the next couple of days, said Michelle
Mainelli, a hurricane specialist with the National Hurricane Center in Miami.

But a weather system located 200 miles southwest of the Cape Verde islands
off the western coast of Africa has the potential to form into a tropical
depression, Mainelli said. The NHC may upgrade the storm to a depression,
meaning the storm would be better organized, in the next few hours, Mainelli
said. A tropical storm is declared when winds exceed 39 miles per hour.

As for whether that system could develop into a hurricane and threaten the
U.S. Gulf of Mexico, "conditions appear favorable for development over next few
days," Mainelli said, but it's too far out in the Atlantic to tell which way
it's headed.


-By Jeanine Prezioso