Temperatures

Despite warming temperatures that already had begun the processof melting snows from Monday’s Nor’easter, the futures market wasable to arrest a further meltdown of its own Tuesday as buyers andsellers were evenly matched. In fact, Tuesday’s price action was soorderly, that not only did the market etch an inside day with highsand lows within Monday’s, but also posted an identical $1.717settlement price. And although some bulls were somewhat reluctantto claim the day as a victory, others viewed the market’s abilityto hold ground following the 25-cent price slide since lastWednesday as promising.

Not forecasts calling for cooling temperatures, nor record lowsset in the nearby heating oil contract could entice the natural gasfutures market to break out of its month long trading rangeTuesday, as many traders decided instead to play it safe and waitfor a more clearly defined price signal. The March contract drifted1.2 cents lower to settle at $1.795 after being limited to a narrow5-cent trading range.

Despite a disappointing storage report and continuedabove-normal temperatures across the country, natural gas futuresbubbled higher yesterday as technical traders found good value inprices near the bottom end of the recent trading range. And byadvancing 6.2 cents to settle at $1.837, the March contract notonly washed clean Wednesday’s declines but also positioned itselfback in the middle of the $1.725-925 trading range. Estimatedvolume was a somewhat lackluster 61,716 contracts.

Above-normal temperatures, both outside traders’ windows and intheir weather forecasts, continued to weigh on the futures marketthroughout trading Monday. The February contract gapped lower atthe open as moderate selling prompted the market down 6.4 cents toits $1.714 close. Estimated volume was heavy, with more than 93,000contracts changing hands.

Here today; gone tomorrow was the prevailing mentality in thefutures arena yesterday when the coldest temperatures of the yearwere more than offset by forecasts calling for a warm-up by earlynext week. And as has been the case for most of the month, it wascash prices that not only led the way for the futures market, butalso notched a larger change on the day-where the January contracttrickled down, 2.2 cents to settle at $1.925, cash prices sank by adime on many pipes.

For the second week in a row, cooler temperatures and spikingcash prices piqued the attention of buyers Monday, prompting shortcovering amid some fresh buying. That enabled the prompt Januarycontract to gap higher on the open, and quickly move to majorresistance at $2.00. But the buying dried up and January was tradedmostly sideways before ticking down at the final bell. Januaryfinished at $1.952, up 9.4 cents for the day.

A return to normal temperatures in the first quarter andthroughout next year is likely to lead to a 2.4% increase in gasdemand in 1999, the Independent Petroleum Association of America(IPAA) said in its November Short-Run Forecast. IPAA sees demandreaching 22.3 Tcf, a peak that surpasses the previous high of 22.1set in 1972 and a significant turnaround from the 1.1% decrease to21.7 Tcf of gas demand expected this year.

Citing continuing reduction of capacity by unseasonably hightemperatures, PG&E Gas Transmission-Northwest said it wouldagain be necessary to limit volumes today to 2,450 MMcf/d atKingsgate and to 1,870 MMcf/d at Station 14 (the last one upstreamof Malin) in order to return the system to optimum performance.

Triple-digit temperatures throughout much of California inlandfrom the Pacific Coast spurred record energy demand, promptingstate and utility officials to call for voluntary cutbacks inelectricity usage on the eve of the Labor Day holiday weekend.Collectively, August turned out to be California’s hottest ever,further testing the reliability of the new power system in thestate.As Southern California Edison, San Diego Gas and Electricand the nation’s largest municipal utility, the City of Los AngelesDepartment of Water and Power, all registered record power demandMonday, a corresponding record for natural gas delivered toelectric generating plants was marked at Southern California Gas,which transports supplies to all three electric utilities. Gassupplies for power generation equaled 1.92 Bcf/d on Monday,surpassing a one-day record set Aug. 11, 1994 (1.877 Bcf), and aspokesperson for SoCalGas said with the prediction of more hotweather later in the week, “there is a chance we will surpass thenew record.”