With $10 locked in their sights, natural gas bulls made it look easy Friday as they propelled the prompt natural gas contract to price levels seen on only a few brief occasions in the market’s 15-year history. After notching new 30-month highs Thursday, the September contract was fast out of the chute Friday as spiking crude oil prices prompted a wave of natural gas short-covering that drove prices to a high of $9.91 just before noon EDT.

The buying ebbed slightly in the afternoon, leaving September to finish the session at $9.588, down more than 32 cents from its early high, but still up 28.7 cents on the day. For the week, the gas futures market was up a staggering 88.8 cents or nearly 10%.

“It was as if the buying floodgates were opened at about 11:30 [a.m. EDT Friday],” noted Ed Kennedy of Commercial Brokerage Corp. in Miami. “I called down to the floor to find out who was buying. The response was ‘everybody.'” For Kennedy, there exists little or no fundamental justification for this rally. “The cool front is moving out of the Midcontinent, and while it may not make it to the East just yet, forecasts suggest that summer is just about over for parts of the Midwest,” Kennedy assessed.

However, for some the fundamental justification exists in the record-setting price increases for the nearby petroleum complex. Though some would argue the economics of the relationship between crude oil and natural gas, it is difficult to deny the way the two markets — traded a stone’s throw from each other at the Nymex — feed off each other. Driven by more refinery woes, crude oil futures notched a new all-time high (22 years) Friday when September crested $67 a barrel. It closed not far from that level at $66.86, up more than a dollar for the session.

Record prices also mean record volume of trading. According to the exchange, a record 383,589 crude oil contracts changed hands Thursday, up from the previous record of 373,048 traded on April 13, 2005.

Technical analysis is not much help either in a market that is moving vertically, continues Kennedy. “I can tell you that this market is as overbought as I have ever seen. It is extremely unusual for a market to trade for 14 days without taking out the previous session’s low…Yet that is exactly what natural gas has done.”

For Kennedy, the really scary thing is not the rally, but rather the inevitable retreat. “It’s going to be fast and furious. When the last incremental short is wrung out of the market and there are no other bids, look out below,” he continued. When this will occur is difficult to determine, however. It will likely follow a sharp move to the upside, which traders sometimes refer to as an exhaustion rally. “It is difficult to predict. All I can tell you is you will know it when it is happening,” he said.

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