Since coined by Federal Reserve Chairman Alan Greenspan back in1995 to explain investors love of stocks, “irrational exuberance,”has come to typify the stock market and its unprecedented bullrally. But yesterday as stock prices plummeted again, “irrationalexuberance” was a more apt description of the natural gas futuresmarket, which spiked sharply amid a frenzy of short-covering andnew long accumulation. When all the dust had settled and the orderstabulated in the data room at Nymex, the numbers were staggering— the June contract rose a whopping 24.1 cents to finish at$2.689, setting a new 30-month high at $3.73 during a session thatsaw 102,978 contracts change hands.

While the stock market’s rise has come as a result of ridiculousP/E ratios and first day IPO’s, natural gas can point to somethinga little more tangible. “Its supply, plain and simple,” aHouston-based risk manager said. “There is just not as much gas outthere as has been in the past.” This point rang loud and clearshortly after 2 p.m. (EST) yesterday when the latest storage datawas released. According to the American Gas Association, 46 Bcf wasinjected into underground storage facilities last week, bringingtotal working gas to 1,163 Bcf or 35% full. Although the reportcovered a week in which temperatures set record highs in keygas-sensitive cooling areas along the East Coast and thus wasexpected to show a small withdrawal, the injection figure fellshort of nearly all preliminary market expectations. Most of thosepredictions were focused on a 50-70 Bcf, which if realized, wouldhave fallen in line with last week’s 58 Bcf injection and short ofboth the 6-year average at 83 Bcf and last year’s 79 Bcf refill.

“We struck out on all counts,” the risk manager continued. “Thismarket entered May with the prejudice that we could catch up on theyear-on-year deficit this month. Now we are falling further behindand there is no end in sight.” In just the first two weeks of May,the year-on-year deficit has swelled from 349 Bcf to 396 Bcf andthe year vs. 6-year average has widened from 51 Bcf to 100 Bcf.

However, for some market watchers, the move higher may be a bitirrational. “This market is in pure panic mood,” said SusannahHardesty of Indiana-based Energy Research and Trading. Forhistorical perspective, Hardesty took a look back at three otherperiods when prices rose to these levels or higher. In December1995, the January (1996) contract hit a $3.74 high inexpiration-related short covering, and then in December of 1996,the January (1997) contract notched the all-time high price at$4.60 in a severe weather short squeeze. In October of 1997, themarket peaked again ($3.85), but that time it was driven more byperception, as the market prepared for a well-publicized El Ninowinter, she said.

However, in all of those cases, speculative fund longparticipation reached no higher than 17% of total open interest andbecause they are once again at that level, Hardesty believes thismarket is reaching its high. “It is sure easier to pick a bottomthan it is to pick a top, but I think we will see the high betweennow and Monday,” she said.

The Commodity Futures Trading Commission will release its latestCommitments of Traders report Friday afternoon, and many marketwatchers are eager to see if it will show the non-commercial sideof the market has increased long holdings over the last couple ofweeks. As of May 2, non-commercials held a net long position of49,168 or 15.2% of open interest.

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