Fundamentals

Cash prices built further Tuesday on their early-week gains invirtually every market except Northern California. Factors behindthe firmness remained much the same as on Monday: a moderate screenincrease, a “stash it while you can” storage mentality and agradual warming trend in northern market areas. Price movementranged from flat on several Rockies pipes to about a nickel higherat many Gulf Coast and Midcontinent points.

Supportive physical prices and concerns over supply tightnesstook center stage yesterday in the natural gas pit at Nymex andthat gave bulls the impetus to post the seventh straight priceadvance. The September contract finished up 2.7 cents at $2.748after notching both a higher high and a higher low for the session.Estimated volume was 77,940 contracts.

Fueled by stronger cash prices and revised weather forecasts,the futures market erupted higher early yesterday as speculativeand commercial traders added to their positions. However, afternotching the highest mark for a spot month since the week endingDecember 12, 1997 at $2.77, the September contact filtered lower ina quiet afternoon session to settle at $2.721, up 2.3 cents on theday. Estimated volume was light, with 62,221 contracts changinghands.

The natural gas futures market made it a ‘perfect ten’ yesterdayby trading within a tight 14-cent range for the tenth consecutivetrading session. The August contract showed promise early, racingout to a strong start and posting a $2.239 high. That, however,would be the best the market could do Tuesday. It then wilted underselling pressure in the afternoon. The prompt month finished at$2.198, down 0.9 on the day.

Natural gas futures continued lower in an abbreviatedpre-holiday trading session Friday, adding to losses achievedWednesday and Thursday and stifling the hopes of bulls who werelooking for short-covering buying into the long weekend. The Augustcontract finished down 2.2 cents on the day at $2.287, 13.3 centsless than Wednesday’s high price. Estimated volume was an extremelymodest 28,784.

Whether the cash market follows the futures screen or vice-versais the source of considerable conjecture and debate in the naturalgas market-almost on a daily basis. Although there have been timeswhen futures have been the driving force in the market, many feelthat cash prices, egged on by solid heating demand, have liftedfutures prices out of the doldrums this month.

Traders put bearish fundamentals aside yesterday at the New YorkMercantile exchange when short-covering and some constructive dailychart features helped the expiring February contract spike higherin active trading. Estimated volume was high, with 134,852contracts changing hands. But despite February’s dramatic 9.6-centadvance to settle at $1.810, many doubt that the market will beable to hold on to those gains when the March contract makes itsdebut today as the prompt month.

Natural Gas futures rallied again yesterday as traders reactedto colder-than-expected temperatures throughout much of the Midwestand Southeast. And similar to advances made last week, Monday’sprice action was fast and furious with the February contractleading the way and gapping 6 cents above Thursday’s high. However,once the $2.085 high for the day was reached about 10:30 EST, theprompt month was left to move sideways within a narrow trading bandfor the rest of the session, notching a 12.6-cent increase tofinish at $2.071.

After a somewhat subdued trading session Tuesday, natural gasfutures sprang back to life Wednesday in a see-saw battle betweenstorage bears and weather bulls. But, when the dust had settled itwas the bulls who took the day, leading one Houston-based trader tosurmise “weather is always king in natural gas.” The prompt Januarycontract settled up 3.8 cents at $1.99 in the regular tradingsession, before adding an additional 4 cents to finish at $2.03 inlast night’s Access session.