Plunge

With weather forecasts producing bearish news at every turn andnational storage reserves looming ever larger, Raymond James &ampAssociates recently published a report projecting spot wellhead gasprices will drop below the $1.50/Mcf level before the beginning ofsummer. The study, however, also warns of a gas “price shock” inearly 2000, when gas shortages run rampant and production is unableto keep up because of sharp declines in exploration and productionspending. It seems the industry is in store for a spot marketroller coaster ride.

Some traders figured they might as well have taken off Tuesdayfor Martin Luther King Day; the cash market to which they returnedseemed about as quiet and low-key as it had been most of last week.Prices showed little variance from weekend numbers, with mostpoints registering as flat to less than a nickel up or down.

Bearish fundamental factors once again took over at the New YorkMercantile Exchange Tuesday, sending the natural gas futures marketspiraling lower and nearly erasing gains registered over the priorthree trading sessions. Even cash prices, which continued to spikedramatically higher yesterday, did not influence the futuresmarket. After January opened below key support, the market neverlooked back as prices fell 18.8 cents to $1.913 at the closeTuesday. And just like that, the futures-cash basis has shrunk froma whopping 97 cents to a tight 14 cents over the past two days.

January futures gapped lower on the daily charts for the secondday in a row Tuesday by opening 11 cents less than Monday’s low.But in contrast to Monday’s downward price movement, yesterdayfeatured an upward price trend for the session. At the closingbell, the prompt month had climbed its way back up to $1.958-only1.8 cents off Monday’s settle.

Tuesday’s cash market prices shrugged-off a late plunge on theNymex futures screen on Monday, as they edged upward on hype fromthe first big snowstorm of the season. Most price points added acouple of cents to Monday’s gains as a powerful storm system plowedeastward after tormenting the midsection of the country. Accordingto weather services, several inches of snow accumulated from theDakotas southwestward to Colorado and the mountains of northern NewMexico and Arizona.

At the end of a week that had mostly signaled price softness,the bottom fell out in the cash market Friday as quotes plummetedby 20 cents or so at nearly all Eastern points. Much like thepreceding days, many Western points proved a bit more resistant tothe overall softness. California border points fell a dime, anddrops on Rockies pipes were mostly in the low to mid teens.

Wednesday’s last-day plunge in June futures had cash sellersrunning scared, sources said. However, basis differentials did notappear to be changing much if any, a Gulf Coast producer said, sobidweek deals done prior to Wednesday afternoon will tend to beanywhere from 6 to 10 cents above the current market. He was makingsales Wednesday at $2.00-02 for Henry Hub and $1.99-2.00 forColumbia Gulf-onshore.