Fall

The futures market came under hefty selling pressure right fromthe outset Tuesday, as the market put aside hurricane fears toconcentrate on the overall bearish outlook for natural gas. TheSeptember contract sustained the largest losses, slipping 9.8 centsto settle at $1.828 for the day.

The Williams Companies was hit hard in the second quarter likemany other energy trading companies, posting a $58 million drop innet income from 2Q97. But a large portion of its trouble stemmedfrom a FERC ruling that challenged the rate-making methodology insome markets served by the company’s petroleum products pipeline.Williams took a $15.5 million charge to cover customer refundsordered by FERC, but said it plans to appeal the July 15 ruling.Williams also still is suffering from merger-related charges. Ittook a $6.1 million MAPCO merger-related charge and recordedanother $3.4 million in costs as general corporate expenses relatedto the merger.

The futures screen may have been active Thursday but it waspretty quiet in the incremental cash market, a Houston trader said.Most points were flat to a bit softer, with the biggest drops ofabout a nickel or more occurring in the markets that had alreadybeen weak in the previous couple of days: the Rockies andCalifornia. Northeast citygates in Transco’s Zone 6 managed to ekeout small gains.

A double-digit drop Tuesday on the futures screen had nearly allsources anticipating softer cash prices Wednesday. They were right,at least in Eastern markets where most points fell by amounts oneither side of a nickel. But markets in the West were surprisinglyfirm. With the exception of Permian Basin and Waha gas in theSouthwest, which joined the East in fallbacks of about a nickel,the West was essentially flat to a few cents higher.

It hardly came as a surprise to anyone when cash prices took along, hard fall Thursday. The previous day’s screen dive had givena none-too-subtle signal of where cash was going. Double-digitdecreases were prevalent at virtually all points, with some lossesreaching 20 cents.

A FERC options paper outlining various gas issues, whichCommission staff has been compiling since last fall, is scheduledto go to the full Commission next week – an indication FERC willtake action very soon. Commissioners are at odds, however, overwhether the gas issues will be addressed on a comprehensive basisor individually.

The April Nymex contract gained 3.7 cents to settle Friday at$2.321, thanks to what one broker called strong fund buying.However, April may be hard pressed to add much more to that.According to the latest Commitments of Traders report,non-commercials extended their net long position by 7,649 contractsto 9,543 during the last two weeks. The broker estimates that 60%of those positions are in April, which would mean these speculatorswould have to wind out of approximately 5,700 April contractswithin the next four weeks. However, if April breaks out of itsrecent technical trading range within the next several days, it islikely funds will add to their overall long position, meaning moreselling pressure would mount on April and May as we approach theApril expiration, a source argued.