Prices hit new highs; regulators scrutinize markets

Brad Foss

Associated Press Business Writer

Oil and natural gas prices climbed to their highest levels in more than nine months Jan. 9 as traders responded to a cold snap in the Northeast, tight supplies and rising demand.

“The weather made people realize just how tight supplies are,” said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago. But some analysts contended supplies of natural gas are adequate and said they were surprised when prices first began to rise quickly in late November.

Utah Sen. Orrin Hatch, chairman of the U.S. Senate Judiciary Committee, said in December that he would hold hearings to determine if the recent increases in natural gas prices were caused by market manipulation.

Also Jan. 9, the Commodities Futures Trading Commission and the New York Mercantile Exchange said they have stepped up their surveillance of natural gas trading in the past week and industry sources said traders’ telephone records have been subpoenaed as part of that effort.

R. David Gary, a spokesman for the trading commission in Washington, D.C., said the agency has increased surveillance because of recent volatility and high prices of natural gas trading activity on Nymex since the start of the month. But, as a matter of policy, he said the agency would neither confirm nor deny the existence of any formal investigation.

Nymex spokeswoman Nachamah Jacobovits said the focus of the scrutiny is to “make sure that futures prices are reflective of what’s happening on cash markets and that there’s no manipulation.” The nation’s commercially available inventory of crude is 3 percent below last year’s levels.

Commercial inventories of natural gas, meanwhile, stood at 2.6 trillion cubic feet for the week ended Jan. 2, or 8 percent above the five-year average for this time of year.

Flynn said the five-year average was misleading since demand for natural gas has been rising.

Crude oil for February delivery closed up 33 cents to $34.31 on the New York Mercantile Exchange — the first time it has closed above $34 since March 17, just a few days before the invasion of Iraq.

Natural gas for February delivery rose 19.3 cents to $7.287 per 1,000 cubic feet Jan. 9.

“I personally don’t believe we should be up at these levels,” Tom Bentz, an analyst at BNP Paribas Commodity Futures in New York, said.

He noted that traders have ignored recent fuel-inventory reports that were bearish and focused instead on bullish factors such as the cold weather and the weak dollar.

“When it’s cold, the market does tend to have an upward bias,” he said.