The April Nymex contract continued its late week rally byclimbing another 4.3 cents to settle Friday at $2.343. The moveleaves April at the highest price it has been since February 6th.

One industry broker said it was only a matter of time before themarket rallied higher. “The underlying fundamentals behind all thisis the supply or production side of the price equation is runningin overdrive. The El Ni¤o winter and the current storage surpluskind of masks the supply situation. It’s not like there’s no gasout there, but production is running on a high utilization factor.There’s no slop in the system other than storage. If that getstighter — and it’s getting tighter every day — your slop isgetting thinner,” he said.

Coupled with this lower supply picture is an outlook forpotentially higher demand. “There will be good systematic buyingfor the winter all throughout the rest of the year,” the brokerpredicted. “For the summer, you can have weather or no weather, butthings like pipeline maintenance/outages, downed nuclear plants,and hurricanes can push prices higher. There are more things thatcan push prices higher during the summer than the winter. Not tothe magnitude as say a cold blast will affect winter prices, butthe number of things that can raise prices in the summer is higher.In any commodity market, especially this one, prices can snowballon even the smallest bit of news,” he said.

The effects of any such disruptions in the market may bemagnified by the current tightness in supply, a producer argued.”Why would this market run this high if the somebody were not netshort? Everytime we get to $2.00, someone buys it. That meanspeople probably think those prices are a good value, but it alsosuggests true shortness in the market.”

He backed up the latter statement by pointing to developments inthe basis market. “Basis is getting tight, and if I didn’t knowanything about anything else, I’d conclude the market is short. ButI do know this. Last year the (futures) market went from about$2.00 to $3.65 and the basis in the Gulf didn’t move at all.Tennessee traded around minus 9 from the screen. When we moved backto $2.10-20, the (Tennessee) basis shrank to -7 cents. A two-centbasis move in the Gulf is huge.

“Having said that, consider the fact that Tennessee is currentlybeing quoted at plus 1-1.5 for the summer. If we’re supposed tohave all this gas available, why is this the case? It’s probablybecause we really don’t have a lot of gas available, and people aregearing up for strong demand this summer,” he reasoned.

Turning back to the day-to-day market, a technician feels Aprilmay be gearing up for a short term correction. “The contractmanaged to fill in the chart gap at $2.355 but quickly bouncedlower than that. Still, April managed to settle near the top of itsrange. I’d say April will trade in the direction established duringthe first hour of trading Monday. If that is to the upside andApril takes out $2.36, look for a move to $2.40. Otherwise, supportexists in the $2.295-305 area,” he said.

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