Amid

Fueled by continued below-normal temperatures and amidconflicting weather forecasts, natural gas futures galloped higheryesterday as institutional investors covered short positionsestablished over the past two and a half months.

Northeast citygates continued to scale new price heightsWednesday as the region braced for another onslaught of what isturning out to be the most severe winter storm of the currentseason by far. Transportation-constrained Transco Zone 6-NYC againtopped the price list with quotes that ran as high as $11, and acouple of sources confirmed that the point had already traded forFriday flow at $13.50. Other citygates in the region were allaveraging more than $5 Wednesday.

Amid a devastating combination of rising temperatures andfalling cash prices the natural gas futures market started the yearwith a crash Tuesday, as commercial and speculative traders alikeliquidated their long positions and added to their shorts. Theprice impact was felt immediately, with the February contractgapping a whopping 10 cents lower en route to a 15.3-cent loss tosettle at $2.176. Despite the sizeable move lower, estimated volumewas a relatively modest 62,491.

After a lower opening failed to attract much in the way offollow-through selling, the natural gas futures market clawed itsway back to post a modest gain Friday as traders were hit a bevy offundamental and technical factors. The January contract closed up1.9 cents at $2.655 while the rest of the strip closed downslightly.

While nearly all the production-area points held steady withchanges of no more than a penny or two in both directions, it wasdelivered prices in the Northeast, Midwest and California that gavethe cash market a taste of volatility Thursday. Northeast citygatesrepeated as the day’s big losers with declines from about 35-38cents (Transco Zone 6-NYC and Texas Eastern M-3) to more than 50cents (Iroquois Zone 2 and Algonquin citygate) as the regionexperiences a very slow warming trend from its early-week chill.Ranges were very large as prices fell steadily while tradingproceeded, one source said.

Most cash prices were flat to a few cents higher Wednesday, butthere was considerable variation among specific market areas. Heavydrafting of the NOVA system led to increases of a dime or more inintra-Alberta quotes and at such related points as Sumas andStanfield. On the other hand, Appalachia/Northeast points werefalling by about a nickel or more after Northeast citygates haddisplayed the greatest price strength earlier in the week.Temperatures remained above freezing for the most part in theNortheast and Midwest, and warmer weather is predicted to startmoving in today.

With temperatures across much of the East Coast pushing abovethe 70-degree mark yesterday, natural gas futures traders hadlittle choice but to take prices lower. But in contrast to lastThursday’s price direction, which had the trajectory of a safepushed out of a 10-story building, Monday’s market had a some lifeleft in it, enabling traders to trim losses throughout much of thesession. After reaching a low of $2.805 during the first 30 minutesof trading, the December contract battled back to finish at $2.914,off 4.7 cents for the day. Estimated volume was light with just57,373 contracts changing hands.

Amid confirmation that volumes of exports to the United Statesare on the rise and confident predictions that prices will staystrong, Canadian natural gas drilling is accelerating rapidly. Thenumber of gas-well completions in western Canada is expected to hitat least 8,200 next year.

Nearly all of the market points in NGI’s price survey declinedfor the second day in a row Monday amid mild weather, a fallingfutures screen and the return of some nuclear power stations. Whilepoints in the Northeast felt the sharpest declines ranging from adime to 20 cents, Chicago managed to fight off most of the bearishsentiment and registered a small drop of 2 cents.