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Strong Bull Market Still Has Plenty of Steam Left

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 trauma stage.

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 one gradually."

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

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