Frenetic activity continued in the natural gas pit yesterday ina see-saw battle that produced two rallies, two dips and oneenormous 11.5-cent trading range. By the time the dust had settledand the orders were processed, the battle-weary August contractmanaged a 3.2-cent advance to settle at $2.574 on its penultimatetrading day.

For the fourth day in a row estimated volume surpassed the100,000-contract mark. In fact, activity last Friday set a newall-time volume record for natural gas, with 203,807 contractschanging hands, Nymex confirmed Tuesday. The previous record datesback to Sept. 26, 1997 when 168,057 contracts traded. And just twodays later another volume record may have been broken Tuesday. Withan estimated volume of 40,916, natural gas options trading easilysurpassed the previous volume record of 35,334 set on Sept. 16,1998.

Local traders were active in the market right from the openingbell yesterday as they bid prices higher in expectation of heavymarket-on-close (MOC) buying, noted Ed Kennedy of Miami-basedPioneer Futures. MOC orders are used by hedgers in an attempt toreplicate as closely as possible the average of the last three dayssettlements, which is what a bulk of their swaps specify. However,the floor traders guessed wrong, and instead of MOC buying, themarket was hit with MOC selling, forcing them to liquidatepositions into the closing bell, he said.

In addition to speculative buying and selling, yesterday’smarket was influenced by hyperactivity on the last day of Augustoptions trading. While options activity usually has little or noeffect on the futures market in a period of high futures volume,Kennedy noted that in quiet periods-such as midday yesterday-itdoes have an impact. “As the August contract slipped back below$2.575 yesterday, there was a round of [futures] selling by thewriters of $2.60 call options who could safely exit some of theirlong positions,” he said.

Does that point to more losses for the market the rest of theweek? Depends on what month you are taking about, insists Kennedy.”While I would not bet against August continuing lower to reach afinal settlement below $2.50, I also am very bullish on Septemberand look for prices to rebound higher.”

As of 7 PM last night the August contract had already dipped 4.4cents from Tuesday’s settle.

©Copyright 1999 Intelligence Press Inc. All rights reserved. Thepreceding news report may not be republished or redistributed, inwhole or in part, in any form, without prior written consent ofIntelligence Press, Inc.