Bungy jumping, yo-yoing and roller coaster riding are allactivities that have very much in common with what has been goingon in the gas pit at the New York Mercantile Exchange this week.Many observers expect more of the same until near-month futureseither take out support at $3.80 or bust through resistance at$4.55, “a nice friendly little trading range.”

Daily price changes have averaged 25 cents since Monday.Yesterday was “up” day, with an eye-popping 18.8-cent jump to$4.133 and a 34-cent range. July came from a low of $3.83 justabove key support at $3.80 and soared to a high of $4.170.

“We still have the support at $3.80. About quarter to 11 [a.m.],cash started clicking up to $3.86-88. All of a sudden we were at$3.93-94, and we got the trade buying in there and the localsstarted pushing it,” said one broker. “One of the maincharacteristics of this market for the last week has been that youget these wide swings and clear out all the resting orders. We’vecleared them all out above and below, and there’s nothing but avacuum in here. If this market wants to move in a direction,there’s nothing that’s going to stop it, so expect to see it move15-20 cents a day. Notice the way we came down yesterday; that’sthe same way we came up today.

“If this takes out $4.185, then we’re talking the upper reachesof the trading range, and I’ll guarantee you there will not be anyselling up there to stop this thing. That would tell me to expect amove back up to the $4.30s and $4.40s.”

The market got its first weather scare of the hurricane season,a tropical depression that was about 425 miles southeast ofBrownsville, TX, yesterday morning in the Gulf of Mexico, but thesystem degenerated by late afternoon into a broad area of lowpressure with a few 30 mph squalls.

The National Weather Service’s latest 6- to 10-day forecast alsocould be seen as bullish because it shows a large area of abovenormal temperatures across the Midcontinent and Midwest through theNortheast and Mid-Atlantic and upper portions of the Southeast, aswell as most of California and the Southwest.

There also is the low inventory situation in storage. It’s easyto talk about bullish fundamentals on a day of increasing prices,but some observers still aren’t buying all this. Oftentimes themarket recently has defied all logic and fundamental indicators andmoved on the whim of those marketers and fund managers eager toenter the fray in this volatile period.

“It came up in a very impressive move today, almost asimpressive on the upside today as it was on the downsideyesterday,” said Ed Kennedy of Pioneer Futures. “Neither one ofthem mean anything. As far as the reports coming out of Houstonthat production is down 10%, I think that’s a bunch of horsepucky… Imports from Canada are up 12.3%. Have you heard ofanybody having trouble buying gas at any price? I haven’t, and Ihandle a lot of orders. There’s no shortage of gas.

“What are these prices predicated on? Why do we have the12-month strip at record highs?” he asked. “It doesn’t make anysense. Oh, by the way, there’s more demand in the wintertime thanthere is in the summertime. We got through the winter with lowprices in a high demand period, and now we’re in a low demandperiod and you’re telling me that the strip is worth $3.92. I thinkit’s a bunch of hype.”

Despite the concerns about storage possibly ending the injectionseason near record lows of about 2.6 Tcf, Kennedy sees no storageproblems ahead. “There will be enough. Did we use up all the gas instorage last winter? No.” Regarding the expected significantincrease in gas-fired generation this summer, he asked, “What’s itreplacing? Everybody assumes it’s replacing coal but that’s notnecessarily the truth. A lot of it is replacing old inefficient gasplants. In other words, the more efficient plants will burn lessgas than the old ones did.”

Kennedy noted there’s another interesting factor in the futuresmarket right now: a noticeable absence of the natural shortsellers, the large producers and end-users. “The structure of themarket is really interesting here. It lends itself to beingcontrolled by the large marketers.” The end-users didn’t have agood opportunity to enter the market during the shoulder monthsthis year. They didn’t get their seasonal slide in gas pricesduring the shoulder months so they’re currently under hedged,according to Kennedy.

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