Early

Technical factors can, and often do, send prices hurling in adirection contradictory to what underlying supply and demanddictate. While this confounds dyed-in-the-wool fundamentalists anddelights technicians, it can also backfire. Yesterday was one ofthose days.

Mild weather and a weak futures screen combined to drop cashprices early for the second straight trading session yesterday. Butunlike last Friday, there was no late rally in the futures screento spark an afternoon rebound. The Northeast and Midcontinentexperienced the most significant drops, with many points in the tworegions falling more than a dime. Some western points avoided thegeneral weakness, with PG&E climbing almost a dime and theSoCal Border and Opal rising a few cents.

For the fourth session in a row yesterday natural gas futuresopened lower and came under immediate downward pressure as tradersgrappled with warm weather forecasts. However, after notching a$2.81 low during the first hour of trading the December contractwas led higher by a combination of local and trade buying. Theprompt contract finished the day down 7.7 cents at $2.837.

Natural gas futures were hit with another wave of selling earlyFriday as traders added to losses incurred during Thursday’s25-cent price slide. However after notching its lowest price inthree weeks at $2.87, the December contract worked its way higherto settle at $2.961, a 0.4-cent loss for the day.

Despite double-digit physical market increases and an earlyretest of the $2.80 level, natural gas futures tanked yesterday astraders weighed the impact of warm weather forecasts for the firstpart of October. After holding in the high $2.70s for most of themorning Monday, the November contract was hit with a round ofselling in the afternoon that pushed the price 16.8 cents lower toclose at $2.625.

California, as the nation’s early poster child for energyindustry restructuring, has to bite the bullet and decide if itwants robust retail competition for natural gas and electricity, orwhether it wants to stop where it is now with wholesalecompetition, “declare victory and everyone go home,” said thestate’s top energy regulator, Richard Bilas, an economist andpresident of the California Public Utilities Commission. If itwants retail competition, then the state should consider adoptingsome of the aspects of Georgia’s gas restructuring andPennsylvania’s electricity changes.

It seems like a safe bet that early this week nobody could havepredicted big price increases anytime in the near future. Themarket’s bearish feeling at the time was palpable. But in somethingclose to a mirror image reversal of Tuesday’s big declines, tradersused an awesome display of might by futures to send cash priceshigher by a dime or more across the board Wednesday.

What had seemed like a mildly softer early aftermarket in swingdeals done Tuesday got much weaker Wednesday. Influenced greatly bya falling screen but also by a continuing lack of positivefundamentals, nearly all points were down a dime or more. NorthernCalifornia was a rare bastion of relative market strength in theU.S. Malin and the PG&E citygate dropped only about a nickel asPG&E repeated last week’s unusual action of issuing alow-inventory OFO on a summer weekday.

Natural gas futures surged again yesterday amid concerns thatproduction shortfalls associated with a sudden barrage of tropicalstorm and hurricane activity will put pressure on an already tightsupply-demand situation. Fresh off a 28-cent price run late lastweek, the September contract tacked on an additional 12.6 centsyesterday to finish at $3.064 after notching a fresh high at $3.08.Estimated volume was healthy, with 101,460 contracts changinghands.