Get Cooking With Gas

You shouldn't kick something when it's down, we're told, but that's foolish advice for traders and investors. Our mission, which we've chosen to accept, is to find the path of least resistance in a market and to fight on the winning side. This difficult task, which violates our sense of sportsmanship and fair play, may be a hallmark of civilization, but it also helps explain why few traders feel comfortable letting their profits run.

The natural gas market of 2000-01 exhibited no such sense of fair play. It kicked the economy when it was down. Along with the unwinding of the technology bubble and the Federal Reserve's excessive tightness in the period, the quadrupling of natural gas prices in 2000 was a major contributor to the poor economy and stock market of 2000-01.

Now that natural gas prices have returned to the lower end of their 1991-99 trading range, on the order of $2.25 per million BTU, should we assume that we'll be free, this winter at least, from price and supply shocks? In a word, no. The forward curve of natural gas futures is signaling a great deal of anxiety about the market's course. More importantly, the curve's shape is raising hedging costs for natural gas consumers. ...