The market was beginning to show more signs of volatilityWednesday, although the swings weren’t quite as wide-ranging asmost of those last week. Cash numbers fell by 10-15 cents at nearlyall points but were expected to rebound again today after futurestraders treated AGA’s afternoon storage report as bullish.

Go figure. A week ago AGA indicated that the year-on-yearstorage deficit continued to increase, and the screen went into atailspin. Yesterday AGA reported that the deficit had been reducedby 15 Bcf, so what does Nymex do? It turns what had been a softerscreen into a gain of nearly 10 cents in the July contract.

It’s not really all that hard to figure, though, according to astaffer at a large marketing firm, because “people who were sayingthat [Tuesday predictions of anything over 70-75 Bcf being bearish]must not have been the ones buying futures.” Look at the positiveenergy factors, he continued: Crude oil over $32/bbl, and gasstorage 174 Bcf below the five-year average and 427 Bcf below theyear-ago level. “That’s a lot of gas to make up, and we’re still sofar behind. Even if they’d put in 100 Bcf, it wouldn’t make thatmuch difference. So we made up a little ground. So what? It wasn’tnearly enough.” He concluded, “I make more money selling in a bearmarket, so it’s hard for me to get ‘bulled up,’ but I am.”

Another trader offered this interpretation: “Everybody’s justlooking for an excuse for the market to run. It’s all psychologynow and has nothing to do with reality.”

Meanwhile, in the reality of the cash market, California pricessoftened along with the overall market despite the state entering asecond day of super-hot weather that should have had every gaspeaking power plant possible straining to keep up with electricdemand. The lower gas prices probably were in response to acooling-off period likely to begin today, one source suggested.

The California Independent System Operator declared a Stage OneElectrical Emergency Wednesday afternoon for the second day in arow. Stage One, issued when power operating reserves drop below7%, asks consumers to voluntarily cut their use of electricity toprevent more severe curtailment measures.

The ISO also called upon PG&E to initiate its localizednon-firm interruptible program for the San Francisco Bay Area. Theprogram allows PG&E to curtail power to industrial andcommercial customers who have volunteered to be cut in exchange forlower electric prices.Temperatures around the bay were breaking35-year-old records, the ISO said, and in addition, “key generatingunits” that serve regional load were unavailable. An ISOspokeswoman declined to characterize what kind of units were down,saying that was not public information. (PG&E’s Diablo Canyonnuclear plant was at 100% operation, according to the NuclearRegulatory Commission.)

The scarcity of California electricity was reflected in pricesreported by market clearinghouse Cal PX. Same-day peaking pricestopped out at $1,290/MWh, Cal PX said. However, juice for today’stransmission got only about half as high at $663.

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