Weakness

The futures market followed an early example set by the cashmarket on Tuesday, as early selling fueled by losses in Monday’sAccess trading pushed the market lower for the second day in row.That enabled the November contract to not only gap lower at theopen, but also to gap below key support at $2.35 on its way to alow of $2.295. However, the buyers saw good value at those levelsand bid up the contract to its settle at $2.346, a 4.7 cent lossfor the day.

Unlike much of last month, when Western markets persistentlydisplayed weakness while their Eastern counterparts were rising, itis the West flexing a bit of price muscle this week. Rockies pipeswere back up into the $1.30s Tuesday after several had made a briefsojourn into sub-$1.30 territory Friday and Monday. The reason forthe rebound mystified one trader. “It’s not that cold in theregion, so go figure,” he said, adding maybe it was just a resultof the normal “tug of war” between gas buyers and sellers.

Natural gas futures traders received a taste of both bearish andbullish news Monday, as the spot June contract turned in yetanother in a recent wave of volatile daily trading ranges. Thebears made their presence felt first after June easily fell belowthe double bottom trading formation in the $2.152-16 area toestablish a new low of $2.110. However, strong buying kicked in atthat point, and the June contract rode that momentum to settle theday up 5.5 cents at $2.257/MMBtu.

Cash numbers were softening as expected Thursday, following theprompt of the futures screen’s late downturn Wednesday. But itlooks like it’s already time to reverse field again and head upwardtoday based on the screen’s strong gain Thursday, sources said.

Despite current crude oil and natural gas price weakness,PaineWebber believes its 1998 wellhead gas price forecast of$2.15/MMBtu is “conservative.” And PaineWebber raised its 1999 spotwellhead price forecast to $2.35 from $2.20. Although the firmacknowledges first quarter producer earnings probably will suffer asetback, over the long term “we’re very very bullish” for eightreasons, said analyst Ronald J. Barone. First of all, despite ElNino’s impact of a 10% warmer than normal winter, spot gas priceshave averaged a solid $2.04/MMBtu so far this year. If temperatureshad been normal, prices would have averaged $2.50, PaineWebbersaid. Secondly, nine of the last 11 summers that followed an ElNino winter have been warmer than normal. Normal to warmer thannormal temperatures next summer would contrast sharply with the 7%cooler than normal temperatures last summer. And warmertemperatures would have an even greater impact on prices if coupledwith near normal hydroelectric power supply – which PaineWebberalso is expecting – rather than the 150% above normal hydro supplyseen in 1997.