After the 37-cent jump in June natural gas futures prices on Monday to $6.231/MMBtu and the continuing increase on Tuesday to $6.269, Huntsman Chemical, the world’s largest privately held chemical company, renewed its call for an investigation of trading activity on the New York Mercantile Exchange and possible “reforms” to the rules that govern gas trading.

“A price movement like we experienced [Monday] would cost the U.S. economy approximately $6 billion on an annualized basis,” said Huntsman Chemical CEO Peter R. Huntsman. “We are told that early in the day someone forecast a ‘hotter than normal’ summer. The price took off, technical buying kicked in, pushing it higher, and gas consumers were once again left holding the short end of the stick.

“It is absolutely outrageous that a commodity so important to U.S. consumers and the economy is allowed to trade with no meaningful stops in place. If it had been beef, trading would have automatically been stopped for 24 hours after a 1.5-cent price increase. It continues to amaze me that the country seems to care more about the potential price of a hamburger than it does a commodity that literally drives a major portion of the U.S. economy.”

Nymex rules limit trading after a move during a daily session of $3.00/MMBtu ($30,000 per contract). If any contract is traded, bid, or offered at the limit for five minutes, trading is halted for five minutes. When trading resumes, the limit is expanded by another $3.00/MMBtu in either direction. If another halt were triggered, the market would continue to be expanded by $3.00 in either direction after each successive five-minute trading halt. There is no maximum price fluctuation limits during any one trading session.

Theoretically, Huntsman noted, the price of natural gas on the Nymex could increase by more than $150 per day. A lot of agricultural commodity futures have trading limits, which, for instance, don’t allow prices to move more than 50 cents a bushel per day, but according to Tim Evans, futures analyst with IFR Energy Services, those limits bring on their own kind of gamesmanship. “Limits can engender a sense of panic, because if a limit is hit, then you can’t get out; then it might immediately hit the limit the next day and you’d be stuck for another day.”

Limits on gas futures trading were changed in 1997 after the market reached the limit five times in seven days and not all in one direction. “Limits hurt market liquidity,” said Evans, and “could limit open interest in a market and provide another potential for abuse or gamesmanship.” Crude oil has a very wide limit of about $5 a day. “It’s so wide it is never hit,” Evans noted.

Huntsman said he doesn’t expect to uncover market manipulation. “Traders are almost certainly operating within Nymex rules and guidelines,” he said. “But we believe that because those rules and guidelines allow such drastic moves in the price of natural gas, they are badly out of whack and must be changed.”

Since making similar calls for reforms last December, Huntsman said he has found “a favorable audience on both sides” of Capitol Hill and intends to continue to encourage members of Congress to push for gas trading reforms (see Daily GPI, Dec. 11, 2003). “It seems to be the only way,” he said. “Our pleas to Nymex have continually fallen on deaf ears.”

The chemical industry has suffered substantial harm from high prices for natural gas, which make up a large portion of the costs of many products. The Huntsman companies manufacture products for a variety of global industries including chemicals, plastics, automotive, aviation, footwear, paints and coatings, construction, technology, agriculture, health care, textiles, detergent, personal care, furniture, appliances and packaging.

Huntsman-held companies have more than 15,000 employees, operations in 30 countries and annual revenues of $9.5 billion.

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