Trading of natural gas futures examined after price surge

Record high touched after Monday run-up

February 26, 2003|By BLOOMBERG NEWS

NEW YORK -The head of the Federal Energy Regulatory Commission's market oversight office said he is reviewing recent trading of natural-gas futures, which had a record surge Monday and touched an all-time high yesterday.

"The magnitude is so unexpected, we're looking into it," William Hederman, head of the FERC's Office of Market Oversight and Investigations, said through a spokesman.

Gas for March delivery climbed 44 cents to $9.58 per million British thermal units on the New York Mercantile Exchange yesterday. March gas touched $11.899 in electronic trading in the morning, the highest price for the contract closest to expiration in the 13 years that gas has traded on the Nymex.

The March contract jumped 38 percent Monday, a record one-day advance.

Cash natural gas prices have had bigger gains. The average price for the Northeast, the most expensive region, doubled Monday and added another 20 percent yesterday, reaching $25.01.

Gas has rallied as colder-than-normal temperatures in the Midwest and Northeast have boosted heating demand and drained inventories of the fuel. Natural gas in underground storage may fall to a record low by the end of the winter heating season next month, analysts and traders say.

These concerns, along with higher crude oil prices, explain the recent natural gas rally, said Bryan Lee, a spokesman for the FERC in Washington.

John Fenton, deputy director of market surveillance for the Commodity Futures Trading Commission, also said that market fundamentals might explain recent price gains.

"The markets have been volatile and the stocks of most of the energy products are low, and we've had a cold winter creating demand," Fenton said. "These are all the ingredients for volatile prices."

Fenton declined to comment on any specific market investigations.

The federal agency, which oversees U.S. futures exchanges including the Nymex and the Chicago Board of Trade, monitors the largest positions in a market on a daily basis, Fenton said. The agency watches for any "concentration of positions that could be used to distort prices."

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