Sweltering heat and higher cash prices tipped the scales inbulls’ favor again yesterday at the New York Mercantile Exchange asprices snapped back with a one-two combo to easily recoup thealmost nickel decline posted during Tuesday’s Access trading. Thefirst spike occurred at the open as speculators were seen loadingup their long positions for the second morning in a row. After thatinitial surge the market moved mostly sideways until right beforethe close, when a round of market on close (MOC) buy orders liftedthe August contract 2.7 cents to its $2.601 final resting place.For the fifth day in a row, estimated volume topped the 100,000mark at 139,502 contracts.

Although the August contract was able to bubble higher late inthe session, the rest of the months were held relatively in checkduring the regular open-outcry session yesterday. But their timewould come and if the two earlier spikes were jabs, this one was aroundhouse. The American Gas Association (AGA) reported astartlingly low storage injection of 41 Bcf yesterday for the weekending July 23, and Nymex Access trading reacted with an immediate10-cent jump past $2.70 in September futures. Currently working gasin underground storage stands at 2,280 Bcf, 43 Bcf less a year ago,but 205 Bcf more than the five-year average, according to AGA data.

Hot weather and strong demand for gas to fuel peaking powergeneration certainly played a roll in slowing the pace ofinjections, but declining production also should take some of theblame. According to second quarter data released by 11 large U.S.gas producers, representing a little more than 22% of total U.S.production, gas production was down 5%. Exxon, Chevron, Texaco,Mobil, Arco (including Vastar), Unocal, Occidental, Union Pacific,Conoco, Marathon and Enron Oil & Gas reported producing acombined 12,123 MMcf/d of gas in 2Q99, compared with 12,728 MMcf/din 2Q98 (See Table).

Armed with declining production and reserves, bulls are havingit their way, a Midcontinent marketer said. “Right now there is adiscussion among my co-workers as to whether we should sell all ofour August supply baseload or save some for the swing market. Bytaking gas into the swing market you have an obvious downside risk,but you stand to capture a rally or two if a hurricane develops. Infact, with the tension in this market right now all it needs is forthe little gray-haired man (Weather Channel’s esteemed tropicalforecaster John Hope) to show his face on the TV and this marketwill jump another 15 cents.”

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