Volatility

Feeding off Monday’s late-day advances, natural gas futurescontinued higher yesterday as traders covered short positions andnotched new longs amid a freshly bullish technical outlook. Theprompt April contract posted new life-of-contract highs for thesecond day in a row, advancing 4.9 cents to finish at $2.963.Somewhat less impressive were the out months, led by May, June,July and August, each of which gained 3.3 cents.

Those bemoaning a relative lack of volatility in much of thecash market since early spring must have enjoyed Tuesday. Thingswere very strong-“to put it mildly,” as a marketer said-in tradingTuesday for both the month of July and the last day of June. It wasobvious to everyone what was heating up prices: heat now andforecasts of more heat later. A strong showing by the August HenryHub futures contract lent further support to cash.

Traders who had been pleading for more market volatility duringa long period of relatively little price movement got it in spadesMonday-at least the ones who deal in eastern markets did. Numbersin the East rose by anywhere from 10 to 20 cents, with many pointsup by 15 cents or more. Western increases were considerably moresubdued; many were only a nickel or so, with San Juan Basin’suptick of about a dime leading the region.

“I’ll be out of a job if they keep this up,” said a Westerntrader Wednesday, referring to the lack of volatility in yetanother in a long string of flat cash market performances. He didmanage to find sort of a silver lining: “I can’t make a good or abad deal in this market.”

Sources were searching for new ways of expressing “flat” as1999’s relative lack of volatility in day trading continued Monday.A lot of zeroes were showing up in the average-change column of theprice table even as lack of fundamentals again failed to depresscash numbers. A Southwest trader reporting “not much demand andplenty of supply available” was surprised that prices weren’t goingdown.

A casual observer of yesterday’s market would look at the tighttrading range, low volatility and unchanged settlement and concludeit was a quiet trading day at the New York Mercantile Exchangewhere neither bull nor bear prevailed. But beneath February’s4-cent trading range and $1.714 settlement price, a battle waswaged as commercial traders in opposing camps, unencumbered bylocals who have largely moved on to March dealings, trieddesperately to influence a move in their direction. And so, as asource from a mid-sized gas marketer lamented, “the big boys wereat it again.”

For the first half of December, natural gas futures have been awhirlwind of volatility, where chart gaps and double-digit pricemoves have been almost the norm. So it came as a welcome change forsome when the prompt January contract exhibited a more sedatedemeanor Tuesday, trading within a narrow band and settlingunchanged for the day. Estimated volume was a relatively quiet50,593.

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.

High volatility continued in the natural gas pit Tuesday whentraders tested both sides of the market during a session that sawlittle in the way of fresh fundamental news. In the end, supportivecash prices-that were up 20 or more cents in mostlocations-provided the incentive for futures to trend higher. TheDecember contract led the way, eeking out a 4.9 cent gain to settleat $2.436 in light to moderate trading activity yesterday.