Gas Futures Set New All-Time High; Settle Above $6.00

In a trading session that won't soon be forgotten by bull nor bear yesterday, natural gas futures marched easily higher as early long accumulation by funds morphed into a buying free-for-all when commercials and locals entered the ring. After setting its daily low during the first hour of trading at $5.80, it was up, up and away for December, as it notched a new all-time commodity high at $6.025. The prompt month finished 31.8 cents higher on the day at $6.016. Meanwhile, soon to be spot month January was no slouch, gaining 29.6 cents to close at $6.002.

After checking lower on the open, technicians were focused on key intra-day support and resistance numbers at $5.835 and $5.895 respectively. A break either above or below those numbers and the market would likely continue in that direction, they said.

Other sources took a step back from the technical side of the market to focus on the impact of record high prices. "There is no fundamental rhyme or reason for these prices," said a broker. "This is not supply and demand. There is storage in the ground and rig counts continue to rise. Sure, November will likely be a little chillier than usual, but is anyone not able to buy gas because of lack of supply? Is anyone being told there is no more gas? The only ones that are unable to buy gas are the ones that are out of business because they can't afford to pay these prices. The fertilizer companies (see Daily GPI; June 30), the aluminum producers, the steel makers --- these are the ones that are affected by these higher prices and the impact on them is profound. There is not one glass producer in the U.S. that is making a profit with natural gas prices at $6. The only reason they are still delivering a product is because of their loyalty to their customers."

Now that prices are in uncharted territory, the question becomes how much higher will they go. While some traders will have a hard time resisting attempts to pick a top, George Leide of New York-based Rafferty Energy Group is not about to get in the way of this bull run.

"You can't try and pick a top up here. You just have to be cognizant of weakening momentum." The first chink in the market's armor would come on a move below an hourly up formation line that comes in at about $5.92 and moves up at the rate of about 2 cents every hour. However, Leide will short this market much more confidently if the December contract is able to fill in the string of recent gaps down to $5.74. "That would tell me that a top is in place and a correction, possibly down to $5.10-20, is underway," he said.

Although it is somewhat overshadowed by the astronomic price increases, the weekly storage report will be released at 2:00 p.m. (ET) this afternoon. Early talk calls for either a refill or a withdrawal of less than 30 Bcf. Historically, the market has withdrawn an average of 21 Bcf (six years) and during the last five years the market has pulled 27 Bcf. However, market watchers are wary that mild weather last week and low storage levels has prompted storage operators to top off their supplies. Last year at this time the market injected 9 Bcf.

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