Swings

The July gas futures contract slid 19.6 cents lower on Monday to $6.314, succumbing to overbought conditions, pressure from strong gas storage injections, a declining storage deficit and normal temperatures across most of the nation.

An initial review undertaken by the Federal Energy Regulatory Commission seems to suggest the spike in natural gas prices in the Northeast and elsewhere last week was “fundamentally driven” by market forces, rather than abusive practices, said the head of the agency’s Office of Market Oversight and Investigations (OMOI) last Wednesday.

Last week’s sudden jolt upward in spot natural gas prices on anticipation of a cold winter was another indication of the “fickleness” of the market, according to the California Energy Commission’s chief natural gas watcher, Bill Wood, who was dismayed by the latest price swing last Tuesday.

This week’s sudden jolt upward in spot natural gas prices on anticipation of a cold winter is another indication of the “fickleness” of the market, according to the California Energy Commission’s chief natural gas watcher, Bill Wood, who was dismayed by the latest price swing Wednesday.

The market was beginning to show more signs of volatilityWednesday, although the swings weren’t quite as wide-ranging asmost of those last week. Cash numbers fell by 10-15 cents at nearlyall points but were expected to rebound again today after futurestraders treated AGA’s afternoon storage report as bullish.

Adding to late session advances made in both regular and Accesstrading sessions Tuesday, natural gas futures pressed higheryesterday morning as local traders bid the market to fresh highs.However, once above the $3.10 level, the buying dried up openingthe opportunity for an aggressive sell-off that ushered the promptmonth lower in the afternoon. The September contract slipped 2.9cents to $3.03 after notching a $2.995 low.

With at least 800 MMcf/d and potentially more than 1 Bcf/d of gas supply to sell, the Minerals Management Service (MMS) will be a major force in the gas market come October when its Gulf of Mexico Royalty In-Kind (RIK) pilot program begins. MMS’ total royalty share of Gulf production is about 2.5 Bcf/d, and by next spring it expects at least a third of that will be taken in kind in lieu of cash payments.

Traders with a penchant for market volatility and large priceswings may want to think twice about scheduling that three-dayweekend. Mondays, as of late, have been a roller coaster ride fornatural gas futures, with either double- digit increases (Oct. 26and Nov. 2) or declines (Nov. 9) welcoming traders back from theweekend. And the market held true to form yesterday, when forecastscalling for normal and above-normal temperatures managed toinspire fund, local and commercial sellers to push the Decembercontract to its two-week low. But in contrast to the declines lastMonday which came in a selling frenzy during the final twentyminutes of trading, yesterday’s price erosion was an all day affairthat left December down 15.4 cents to $2.305.

Following two days of active trading and sizable price swingsthe futures market traded quietly to either side of unchanged onWednesday. September futures closed at $1.819, managing a 0.7-centgain on the day.