Taking momentum from Monday’s session, August natural gas streaked higher in Tuesday morning trading to record a high of $13.610. Mimicking Monday’s 15.5-cent gain, the prompt-month contract added a similar 15.2 cents Tuesday to finish the regular session at $13.505.

August crude once again played a supportive force as the contract jumped around the $140-plus per barrel area the entire session. The prompt-month contract reached a high of $143.33/bbl before settling at $140.97/bbl, up 97 cents from Monday’s finish.

Attempting to make sense of the skyrocketing energy commodity prices of the last couple months, Commercial Brokerage Corp.’s Tom Saal said one of the keys when commodity markets are soaring or crashing is how the cash markets are reacting.

“The first thing you want to look at is whether the natural gas cash market has followed suit on this run-up,” he said. “The answer is ‘yes,’ so people are paying these elevated prices. For a buyer that is scary news. Right now, the old worn out cliche says it the best; the trend is your friend. The market is still trending higher and will continue to do so until somebody finally says they are going to stop buying it. In futures, we are advising people that they have to hold their nose and continue to buy and sell this thing because we don’t know how high it is going to go.”

Saal said the current price level is interesting because the first and only time it was seen before was back following the triple hits of Hurricanes Katrina, Rita and Wilma in late 2005. “We are testing that elevated price level that was brought on by the Gulf of Mexico outages in late 2005, but unlike here, those prices were brought on by actual events.” Front-month natural gas futures in December 2005 recorded an all-time high of $15.780 following an active hurricane season.

“Borrowing from Economics 101, we are finding that the elasticity of demand in the short run for natural gas is quite inelastic,” he said. “People are willing to pay because they don’t have any cheaper alternatives. The only alternative to burning natural gas right now is not to burn it. The price of competing oil is a lot higher, so even those that could switch have no incentive to do so.”

Looking at potential resistance points, the broker said he sees $13.699 as a possibility, but he wasn’t ready to hang his hat on the prospects of it holding up. “The current market dynamics and price level are really nothing short of remarkable. We could still see even higher values here.”

With the calendar flipping pages to July, traders will begin to monitor the tropics just a little bit closer for storm development. During a typical June 1 to Nov. 30 Atlantic hurricane season, June is fairly quiet and activity begins to steadily ramp up during July.

Checking the current radar, meteorologists are not ready to cry wolf yet. “Let’s not get overly panicked just yet, but there is reason for at least some concern,” said John Kocet, a meteorologist with AccuWeather.com. “Within the past 24 hours, a strong wave of low pressure has come off Africa. From now through September, many waves of low pressure will appear in the same location but few will develop. Later in the season, this system would have a much better chance of turning into something substantial. However, this disturbance must negotiate a stretch of cooler water before it enters the energy-rich seas of the central and western Atlantic Basin, which lessens the chances for tropical development. We’ll watch it anyway, just in case.”

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