The May Nymex contract continued its strong charge higher onThursday, reaching a high of $2.605 before ultimately settling up6.1 cents at $2.562. More impressive than the increase, however,was the estimated volume figure. Coming on the heels of Wednesday’shigh trade volume, Thursday saw over 100,000 contracts tradinghands. This leaves little doubt speculators played a role in May’srise yesterday. Even though current Henry Hub prices are 15-20cents lower than that, the current heat wave is waking people up tothe possibility of extreme air conditioning demand this summer, ananalyst told GPI. “The supply/demand balance has been so tight forso long, that his extra demand is highlighting potential problemsthis summer. There are already problems with coal delivery inTexas, and if that continues into the summer, watch out,” he said.

Of course, hurricanes, downed nukes, and pipeline outages couldadd to the potential upside. Even the uncertainty of those thingscan add to implied volatility, the very thing that tends to havethe most impact on options prices. One industry broker fullyexpects implied volatility for July and August to increase by atleast 20% to 25% by June “in order to resume a more normal level of60% or so for those months.” Although he doesn’t feel this increasein volatility will raise the option premium by enough forspeculators to profit, he did say these options are currentlyproviding relatively inexpensive insurance. “I think buyers inparticular can benefit from this by using calls. As we continue toset new higher prices, volatility should increase, and also driveup the option premium,” he said.

This year’s warm winter has left this summer as an extremewildcard, since summers typically tend to be hotter than normalfollowing an El Ni¤o winter. However, some meteorologists predictthat this summer could see more of a leveling out of temperatures,and therefore of natural gas demand. “Call options serve bothscenarios by placing a cap on prices should buyers need moresupply, but they don’t have to be exercised if this summer is morenormal,” the broker said.

In daily technicals May has immediate support at Thursday’s$2.465 low with further buying expected in the $2.40 area.Resistance exists at $2.605 and $2.650.

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