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Nymex Expiration Day: Calm Before Storm

Nymex Expiration Day: Calm Before Storm

After opening just below Tuesday's close, the May futures contract chopped lazily sideways yesterday before eking out a small gain before the close. In fact, yesterday's price action was so subdued it was hard for some traders to believe it was expiration day at the New York Mercantile Exchange. The May contract completed its tenure as prompt month, expiring at $2.348, up 1.7 cents for the day.

The calm, however, would not last. Similar to that old saying about the weather, the natural gas market yesterday could have easily been described with "if you don't like the price action, wait a minute" because, shortly after the May contract was cleared from the board the June contract nearly shot off it. And whereas May's precipitous rise-50 cents during its month as the prompt contract-was due to a combination of factors, the quick spike Wednesday was associated with only one. The American Gas Association (AGA) released its weekly storage report yesterday, which said that only 5 Bcf worth of gas was injected into underground storage facilities last week. And for the second week in a row the single digit refill paled both in comparison with expectations focused on a 30 Bcf build and last year's 64 Bcf increase. The June contract quickly took the cue to trade as much as 7.4 cents higher in last night's Access session. At 6:00 EST June was 4.5 cents higher at $2.386.

A Houston marketer, while being surprised by the low storage injection, feels it can be explained by a tightening of the 12-month strip. "A month ago there was economic incentive to inject gas while hedging it against the November or December futures price. Now the opposite is true." He added that there is even a "sell now inject later" mentality sweeping the market. "There is a growing contingent that feels that prices are defying gravity up here. They look to sell it now before it comes crashing back down to earth." However, he feels this thinking might be a bit skewed and looks for higher prices as people continue to delay their injections.

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