Volatile

With the advent of ending its electricity rate freeze thissummer and moving to a more volatile pricing environment, San DiegoGas and Electric Co. was given a new incentive rate mechanism todetermine its future utility revenue needs by California regulatorslast week. Current rates will not change because of the new”performance-based ratemaking” (PBR) system, but the system will beused the next time the regulators review SDG&E’s performance.

Expectations often differ from what actually comes to fruitionin the volatile arena of natural gas futures, and yesterday thatpoint was driven home when a bullish combination of slow-to-resumesupply outages met with a smaller-than-expected storage refill.Traders chased the market higher most of the day, and advances inthe evening computer trading Access session nearly matched theregular pit-trading gains. The November contract received thelargest boost, rocketing 16.8 cents to post a final trade of $2.515last night after briefly settling at $2.433 earlier in the day.

There was no calm before the storm on Thursday as the futuresmarket experienced another day of volatile, choppy trading astraders turned to televisions in trading rooms across the countryfor the direction and strike probabilities of Hurricane Georges.The October contract bounced back and forth throughout the tradingsession as the market digested the imminence of supply shut ins.That prompted the spot month to move 4.8 cents higher yesterday,settling at $2.179.

For the second Wednesday in a row, ebbing concerns of tropicalstorms and a “buy the rumor, sell the event” mentality has put themarket under selling pressure. In the wake of Hurricane Earl lastweek the October contract sank 13.4 cents. This Wednesday, themarket was already in the process of giving back some of Tuesday’sgains even before Tropical Depression number 6 became TropicalStorm Frances. That left the October contract down 4.1 cents tosettle at $1.833 yesterday.

Traders saw a down-then-up pattern in many markets Monday asprice ranges tended to remain volatile, though not as large asduring Friday’s meltdown. The ups were smaller than the downs inmost cases, leaving average prices ranging from barely softer to asmuch as a dime lower. Malin saw the greatness weakness with a fallof about 15 cents, even though weekend OFOs at the Northern andSouthern California borders had ended.

Following three days when trading volume at the New YorkMercantile Exchange averaged 117,518 contracts, the May contractgained a mere 1.4 cents to $2.342 amid a session when “only” 74,378contracts changed hands. Sources said much of the activity onFriday was simply position covering ahead of both the weekend andthe expiration of the May contract this Tuesday.