The New York Mercantile Exchange Inc. (Nymex) reported its highest trading volume in its history in 2003 with the total of 139 million contracts, breaking the record of 134 million in 2002. But natural gas played a much smaller-than-expected role in that record-breaking performance.

In fact Nymex’s entire statement on its record year made no mention of natural gas, the No. 2 commodity on the exchange behind crude. Gas did poorly in 2003 compared to 2002. While total futures volume rose to a record 113.7 million contracts, breaking the record of 107.8 million set in 2002, gas futures volume tumbled 22% to about 19.04 million compared to the record 24.3 million in 2002.

The 2003, New York Harbor heating oil futures volume was a record 11.6 million lots, exceeding the 2002 record of 10.7 million. New York Harbor gasoline futures volume set a record with 112 million in 2003, breaking the 2002 mark of 10.98 million contracts.

By Nymex said not to worry about natural gas. Gas contract volume in 2003 wasn’t that much lower than in prior years and in fact was quite a bit higher than the 16 million contracts in 2001.

“We feel like since last year natural gas was up 60% from the year before that to have the expectation that it would surpass that level would have been unrealistic,” said Nymex spokeswoman Nachamah Jacobovits. “A lot of what was happening in 2002 was people exiting positions or using us to roll over from the [struggling] over-the-counter (OTC) market.” That served to boost futures volumes to unexpected levels in 2002 as many ran from the cash and OTC markets to Nymex.

She also noted that many energy merchants subsequently left the business in 2003.

“But given that there are fewer people in the market, [the relatively average trading volume] shows this is still a pretty stable market,” she added.

The poor showing in gas futures brought with it a drop in liquidity that was at least partly to blame for the volatility seen in the market this winter and all of last year, Jacobovits admitted. But she noted that the market as a whole, both cash and futures, has suffered and both are experiencing high volatility and high price levels.

“The high prices for the January contract have been there since April,” she noted. “People have been looking at prices in October and comparing it to January and saying, ‘Look how much the price went up in the spot month.’ But the January contract since April has been ranging from $5.50 to $7.

“The physical market has a couple of problems and some changes have taken place, one of which is that the people who held the storage before had the ability to move it around on paper [in the OTC market] and that [lowered] volatility; now those people are gone,” said Jacobovits. “There are fewer players and that does make a difference.”

But Jacobovits said Nymex officials aren’t the “ultimate experts on prices. We are the ultimate experts on how to make the market be honest and be an accurate reflection of prices. Our job is to make sure no one is manipulating the market, not to make sure the price is high or low.”

She said that with calls on Capitol Hill and from state regulators for an investigation into possible manipulation of gas futures, Nymex has been scrutinizing the market with a fine-toothed comb, ensuring that everyone is in compliance with the rules.

“Nobody likes high prices, but that doesn’t mean that they aren’t valid prices,” said Jacobovits. “They are the result of a free market. Otherwise, we would just have price controls and supply would dry up.”

While much of the concern has focused on declining natural gas volumes, volatility and high natural gas prices, few people have noticed that average gasoline and oil prices in 2003 were the highest in history, Jacobovits said. “I was shocked that I didn’t get more calls about that.” Those other commodities, particularly oil, are closely related to natural gas. The oil pit is right next to the natural gas trading pit, and the influence of crude trader sentiment on natural gas trading often has been overlooked.

Crude and gasoline set record trading volumes in 2003. Other Nymex records in 2003 include the following:

In addition, the following records were set on Nymex Access, the exchange’s overnight electronic trading system:

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