Modest

Adding to Tuesday’s modest price advance, natural gas futures surged higher Wednesday as early morning commercial buying triggered local short-covering at midday. Buying was almost uniform across the 12-month strip, suggesting hedging activity by end-users who may have missed their opportunity the last time prices were near $5.25. June futures closed at $5.385, up 14.9 cents for the session. The 12-month strip, meanwhile, outperformed the prompt month, advancing 15.1 cents to $5.446.

After initially ducking lower to equal Monday’s $5.16 low, the June natural gas futures contract struggled higher in featureless trading on its first session as prompt contract Tuesday. It closed at $5.236, up 4.6 cents for the session and 7.6 cents off its early low. Estimated volume was light, with 69,391 contracts changing hands.

Buoyed mostly by storage demand, modest firmness continued to dominate eastern markets Tuesday, although a few points were flat and only Transco Zone 6 non-New York managed a gain of more than about a dime. Softness reigned in most of the West, which not coincidentally is the only region that was not drawing down storage in the last two Energy Information Administration reports.

A modest show of strength in natural gas futures was no match for the continuing erosion of heating demand in most regions Tuesday, sources said. Wednesday’s remaining pockets of chill were expected to be confined to the Pacific Northwest, sections of the Upper Plains and Upper Midwest along the Canadian border, and the northern portions of the Northeast.

Despite overbought conditions and forecasts calling for warming temperatures, natural gas futures finished the week on a positive note Friday as traders bid the market higher in sympathy with cash prices that remain at a premium to futures. There also was apprehension of the release of potentially bullish storage data Thursday. However, the gains were a winter-month-only phenomenon, as advances in February and March were in sharp contrast to losses throughout the rest of the contracts.

After bending but not breaking lower at the open, natural gas futures battled back Monday as traders digested updated weather forecasts and storage estimates. The January contract finished at $5.116, down 6.7 cents for the session but up 8.6 cents from its $5.03 low. As expected, estimated volume — at 66,458 — was weak, as many traders elected to remain on the sidelines ahead of the holidays. Nymex energy markets will close at 1 p.m. Tuesday and reopen at 7 p.m. Wednesday with Access trading.

Decreases in production guidance, combined with modest increases in 2002 capital spending, imply that oil and gas companies “are spending more money with [fewer] results,” according to the latest Lehman Brothers Oil & Gas report on large-cap exploration and production (E&P) companies. In the near term, analysts believe that rising natural gas prices will lead to a rally in E&P shares. In the longer term, however, economic implications of falling production per share are “troubling.”

Generally moderate softness dominated the weekend market. With pockets of modest gains tucked in here and there, a large majority of points ranged from flat to down about 15 cents Friday, although most of the losses were confined to single digits. However, San Juan Basin numbers stood out with a plunge of about 35 cents.

Modest to large gains in the Rockies and San Juan Basin ran counter to an overall trend Monday of price decreases that in only a few cases varied from a range of about a dime to 20 cents.