Whether it was too much holiday turkey or possibly just a postY2K letdown, the natural gas futures market began the year insomewhat of a funk last week as traders showed an unwillingness topush prices very much on either side of unchanged.

In fact, the only notable feature was the enormous gap theFebruary contract produced Tuesday by opening more than a dimebelow the low from the Thursday prior (Nymex was closed Friday andMonday in observance of New Year). However by Tuesday afternoonthat gap lower was little more than a blip on a technician’s chartand the February contract found an almost equal amount of buyingand selling interest in the teens. After brief and unsuccessfulforays above the $2.20 level Thursday and Friday morning, theprompt month filtered lower Friday afternoon to finish at $2.173,down 2.3 cents for the day and 15.6 cents below its close from theprevious week.

With very little to remark about the current market last week,traders chose to speculate on what path prices would take duringthe first half of 2000. And although opinions were mixed on theshort term outlook, traders were mostly in agreement that summerprices have the potential to spike if the market experiences anycombination of warm weather, inefficient nuclear utilization, andcontinued high oil prices.

While it is still too early to determine if natural gas willreceive a boost from above-normal temperatures this summer, it islikely gas will play a larger role in electric generation,especially if crude oil prices stay high and nuclear utilizationlow. “It is unlikely East Coast nukes will run as efficiently atthe 85-90 percent utilization rate seen last year. Add to that thefact that the market no longer has $11-12 crude oil on which torely, and you have a scenario that points to higher [natural] gasprices,” a Houston risk manager reasoned.

A Northeast utility buyer agreed, adding that he has eschewedpulling too much gas from storage during this relatively mildwinter for that very reason. While he estimates his average cost ofgas in storage to be about $2.50, which is more than the currentspot price, he is more concerned with the replacement value of thatgas this summer.

“The gas already in the ground is a sunk cost. Right now itmakes more sense to buy physical and save as much storage as I canfor this summer. With all the electric generation coming online,winter is losing its title as the peak demand season.”

According to the American Gas Association, end-of-yearinventories in underground storage facilities were 2,437 Bcf or 75%full, which is 221 Bcf above the six-year average. And early marketspeculation points to that surplus growing this week when the AGAupdates its figures. The six-year average withdrawal is 151 Bcf.

In daily technicals, the February contract will find support andresistance at the bottom and top of last week’s $2.125-23 tradingrange. On a move higher the market will encounter selling at thetop of the aforementioned chart gap to $2.305. On the downside, thecontract has additional support at prior lows from the dailycontinuation chart of $2.08 and $2.01.

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