Strong Bull Market Still Has Plenty of Steam Left
Despite the gas futures rally that pushed May prices to contract
highs of $3.087 last Thursday, Susannah Hardesty, president of
Energy Research and Trading, still expects a higher spike next
month, possibly to $3.30 for the near-month contract, as
nervousness over strong summer gas and power demand reaches the
And she's not alone. Given the significant hype about the
increase in gas-fired generation and the surge in peak summer power
needs, Cynthia Kase of Kase and Company said this market could soar
to unexpected heights.
Speaking last week at GasMart/Power 2000 in Denver, Hardesty
said she's looking for the near-month contract to make a downside
correction to the $2.60s or $2.50s before the next spike, which
will be the second peak of the spring high. "The final peak of the
spring high, I think, is going to be the one that is going to take
us away. This is due from May 20 to June 23 and I'm looking for
first futures prices to go anywhere from $3.05 or $3.30.
"The reason for that is the projection for weather in June. All
the weather forecasters are looking for warmer weather this summer,
but the major bias is that June could be, relatively speaking, our
hottest month all summer so that should send prices soaring during
the month of June."
Although a lot of the demand from new gas-fired generation
already is reflected in the price, Kase said, "on a panicked buying
spree, the 12-month strip could go to $3.30. I don't see much
potential above that. The front of the market [the near-month
contract] could go to anything. We always say that prices could
rise theoretically to infinity. You could see a shot driving prices
above their old historical high of $4.80 to $5.75 even higher.
"One point to make though is that every time we've made new
highs in the 12-month strip it's been by about 15 cents at a time
so if we do make a new high of $3.30 it's going to take some time
to get up there. We went from $2.75 to $2.89 and then from $2.89 to
$3, about an 11-cent increase. I think we're going to see the next
Well, the 11-cent jump in two days last week to a new record
high of $3.116 for the 12-month strip was quite a bit faster than
what normally would be considered gradual.
Both Kase and Hardesty agreed, however, prices could come
tumbling down as fast as they have shot up. "In July we're looking
for the first drop of the summer low between $2.50 and $2.40
because we'll no longer be as concerned about cooling demand for
the summer," said Hardesty. "The La Nina is expected to end by
mid-summer, so I think there's a good chance that we'll have a
normal hurricane season in which case we could see a second bottom
for the summer low."
Hardesty said the increase in gas-fired power generation will
prevent her projected summer low this year from reaching the $2.10
average lows of past. "I'm looking for a low around $2.40. But
something that could take prices lower is if we have a normal
hurricane season this year instead of the abnormally active seasons
of the past three years. Late August or early in September we could
see prices declining even further."
Kase said her projection on the late summer drop is $2.44.
"There's another reason we could see lower prices, however. Right
now there's a certain amount of hysteria in the market. People are
anticipating all this demand. They're saying, 'Oh look at all this
gas-fired generation and there's no gas; boy we have to buy more
gas.' And so if they buy too much now and push it up further, up to
$3.30 right away and a lot of that is just on fear, we may see that
too big a swing up is going to cause too big a swing down."
Rocco Canonica, Denver