In what might have been a bit of “irrational exuberance,” natural gas futures shot higher Wednesday following Federal Reserve Chairman Alan Greenspan’s testimony before the Joint Economic Committee in which he expressed concern over high natural gas prices and tight supplies. Local traders led the rally at Nymex, which propelled the June contract to a $6.33 early afternoon high. Although light profit-taking was seen ahead of the close, the losses were minimal, leaving June to finish with an impressive 14.2-cent gain at $6.198.

Greenspan told lawmakers Wednesday that his concern was prompted by sharp increases in gas prices, “extremely low levels” of gas in storage, a slower than normal rebuild in storage inventories, the “inability of heightened gas well drilling to significantly augment net marketed production,” and dwindling gas exports from Canada (see related story this issue).

Heading into the session, many market watchers had expected a flat or even softer futures market Wednesday, with prices possibly dipping down below the $6.00 mark. “June opened about unchanged and began to move lower just as Greenspan was making his remarks,” said Tom Saal of Miami-based Commercial Brokerage Corp. “Once the locals caught wind of the news, the buyers stepped up and the sellers backed away,” he continued. The July contract, which begins trading a few minutes after the prompt month, managed to gap higher on the news.

Because the intent of Greenspan’s remarks was to spur Congress and not the price of the commodity, some market-watchers suggest the gains will be short-lived. “Greenspan stated the obvious, or at least the obvious perception, that exists right now in the market,” said Saal who believes producers are having an easier time finding gas than many market prognosticators believe (see Daily GPI, May 13).

With the U.S gas rig count up 8% for the month and 25% for the year as of May 16 (see NGI’s Baker Hughes Table), many market watchers are closely watching for indications that supply is also increasing. Rising production, mild springtime temperatures and the demand destruction that is likely taking place at these price levels are all helping to fuel higher storage injections this season. But with stocks still at record low levels, the question is how much excess supply is available and how quickly can it be injected into storage.

The market will get another piece to that complex puzzle Thursday when the Energy Information Administration releases its weekly storage estimate. Earlier predictions suggest an injection in the 78-90 Bcf range. Last year at this time, the market injected 68 Bcf, and the five-year average is an increase of 78 Bcf. The industry needs to inject an average of 84 Bcf a week to reach the 3,000 Bcf level or a whopping 92 Bcf to reach the 3,200 Bcf level. Last year, the industry injected roughly 60 Bcf over the same period and the five-year average about 65 Bcf/week.

Should the market continue higher Thursday, resistance is seen at Wednesday’s $6.33 high followed by the recent double top at $6.43-44.

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