Covering

Undeterred by the fact that this week’s arctic cold front wascovering its largest area yet and showing little inclination forgoing away before the weekend, cash prices took a cue from thescreen and dropped by more than a dollar at almost all pointsTuesday. In a seeming pullback from the brink of market chaos,California and the Pacific Northwest registered plunges from about$11 to nearly $25.

Buoyed by cold weather in the Northeast U.S. and in sympathywith higher heating oil prices, natural gas futures checked higherin light holiday trading Monday as traders covered shorts initiatedin last week’s sell-off. At the closing bell the November contractwas 14.2 cents higher at $5.15.

Following the lead of both the over-the-counter and cashmarkets, natural gas futures erupted higher yesterday morning astraders covered shorts on the outside possibility that a tropicalstorm might develop in the Gulf of Mexico. The September contractwas the biggest mover, posting an impressive 21.3-cent gain tofinish at $3.987.

After tumbling 5% on the release of a bearish storage reportWednesday, the natural gas market clawed its way back up yesterdayas locals were forced to cover shorts after watching stubbornsupport in the $3.90s hold yet again. With that buying pressure,the August contract finished 13.5 cents higher at $4.166, recoupingmore than half of Wednesday’s losses.

After rebounding 5% during Friday’s short-covering rally, bullsat Nymex cooled their heels yesterday as traders pressured thecontract lower on moderating weather forecasts and a less bullishtechnical outlook. At the close, the prompt August contract was off3.4 cents at $4.228.

Kerr-McGee Corp. has bought a 50% stake in four explorationlicenses covering 1.5 million acres offshore Nova Scotia, Canada,from Canadian 88 Energy Corp. for $10.5 million. The deepwaterexploration prospects are located 125 miles south of Halifax inwater depths from 500 to 9,200 feet.

Fueled by a steady flow of short covering, natural gas futureserupted higher late yesterday morning as traders looked pastbearish storage data and focused on constructive short-term weatherand technicals. After testing support in the $2.65-67 area around10 a.m. (CST), the April contract rallied throughout the rest ofthe session to finish up 7.6 cents at $2.786.

Buoyed by a late short-covering rally natural gas futuresstruggled back up to just below unchanged yesterday as traderschose to wait on the sidelines ahead of the release of freshstorage data. The closing up-tick was the only feature bulls couldstomach in a market preoccupied by continued mild weather acrossmuch of the country. The February contract finished down 0.8 centsat $2.168 following a session that saw prices match Tuesday’s $2.20high but plumb a half-cent below Tuesday’s $2.13 low.

While El Paso’s new agreement covering 1.2 Bcf/d of its firmtransportation capacity is likely to draw intense public andregulatory scrutiny, it may not be able to overshadow the growingconcern over its capacity allocation procedures. Despite someconcerns that revisiting the issue could undermine the recentlyapproved major settlement, more existing shippers have come forwardclaiming huge losses due to El Paso’s overbooked pipeline.