Retracing an early round of profit-taking, natural gas futuresclawed their way higher Friday as traders put the finishing toucheson a week in which prices not only notched a new life-of-contracthigh at $3.385, but also posted a fresh prompt contract 30-monthhigh. With Friday’s 0.2-cent increase, the June contract advancedeach day to gain 32.9 cents for the week. June finished at $3.354amid light estimated volume of just 54,639.

Fueled by a positive $3.065 opening price last Monday along withtemperatures pressing 90 degrees across much of the East Coast, thefutures market was off to a fast start. As it turned out, it was asample of things to come, because after posting a 14.5-cent advanceMonday, the market never looked back.

However, it could have just as easily been a big move lower,insists Tim Evans of New York-based Pegasus. “The market was veryvulnerable to a move lower [last] week, following its negativeclose [the Friday prior]. Had we got a $2.99 offer rather than a$3.05 bid on the open, things would be much different.” Evan’srationale for this assertion lies in the coincidence of several keylevels of support at $3.00. “Not only was it a psychologicallyimportant even dollar level, but it was also the intersection ofthe 40-day moving average and trendline support for the bull run.”

“Coulda, woulda, shoulda,” quipped a cash trader in response tobears’ missed opportunity. “There was just too much fundamentalstrength for prices to slip lower,” he reasoned.

And he was right, because there was no denying the one-twodemand-supply that hit the market last week. Demand struck first,as traders scrambled to obtain “every last molecule of gas” in theNortheast U.S. to fire electric generation facilities. Power pricesspiked as high as $6,000 Monday afternoon in the ISO New Englandservice area. But no sooner had temperatures begun to moderate thanthe market was rocked by another fundamental event. Instead ofaffecting demand like the weather, the storage report impacts thesupply side of the market. At 58 Bcf, last week’s storage injectionfell dramatically short of last year’s 72 Bcf and also the six-yearaverage at 71 Bcf.

Looking ahead, Evans believes the storage situation could becomeeven more bullish this week when the injection is stacked upagainst a 79 Bcf refill seen at this time last year. If this week’sinjection does falls short of 79 Bcf, it will serve to widen the363 Bcf year-on-year storage deficit.

And unless the market really picks up the pace of refills, itwill be hard-pressed to eat into that deficit until at least July,which is where Evans notes the rate of injection started to laglast year. “July [1999] was the hottest on record and injectionsreally slacked off,” he said.

But while Evans feels it may take until July for prices to cooloff, Susannah Hardesty of Indiana-based Energy Research and Tradinglooks for a correction a little bit sooner. By looking at the10-year history of natural gas futures, she targets three otherperiods — December 1995, June 1996 and August 1999 — whereprices have been driven to the top 25% of their trading channel orhigher on a combination of strong fundamentals along with strongspeculative participation. During the more recent two of thosethree peaks, the stock market has experienced a serious downsidecorrection, which Hardesty feels has prompted fund traders to seeknatural gas futures as a haven for cash from liquidated equityholdings. In each of those periods of high natural gas prices,speculative traders have held longs comprising 15-17% of openinterest for three to five weeks prior to prices tumblingdramatically lower in a steep sell-off. Based on these historicalobservations, Hardesty predicts June futures will reach a highbetween $3.40 and $3.45 this week, followed by a correction nextweek to between $3.10 and $2.65.

In other news NYMEX received approval Friday from the Securitiesand Exchange Commission on its plan to convert the Exchange from anot-for-profit membership structure to a for-profit organization.The Exchange board of directors scheduled Tuesday, June 20, for avote by the membership.

©Copyright 2000 Intelligence Press Inc. All rights reserved. Thepreceding news report may not be republished or redistributed, inwhole or in part, in any form, without prior written consent ofIntelligence Press, Inc.