If you’re into conspiracy theories, NYMEX is the place for you right now. This week’s swoon in prices, which is raising the specter of natural gas under $5.00 within a week of its flirting with $6.00, has some mumbling that short sellers are playing tricks with the market. Particularly in light of the FERC’s finding this week that Amaranth trader Brian Hunter did just that back in 2005. Turns out its not all that hard for short sellers to trick the NYMEX and drive prices down long enough to grab quick profits.

Whatever the cause, NYMEX has clearly decided that February doesn’t count as a Winter month. Today’s storage report, which came in substantially under predictions for the first time in a while, has done nothing to change that perception, though immediate reaction to the report has been muted.

The word on the street is that continued mild forecasts have put a pall on optimism within the markets. Recent history says Winters have been holding on longer in much of the country, extending cold weather well into March and even April. It all depends on which weatherman you choose to believe.

What is becoming increasingly clear is that no one really knows where the price of natural gas “should” be right now. The predictors who spoke confidently of 2010 being a year of stability in the $5.00-$6.00 range were the same people who told us that prices would top $20.00 back in 2008.

There are no clear signs right now when the decisions and the market plays that will create the new fundamentals of the natural gas market will actually start to happen, or how they will break when they do. Much of this will depend on how Congress acts: whether they pass meaningful carbon legislation, whether they’ll muster support for some kind of a national energy strategy that involves natural gas. And for the moment, action and Congress are mutually exclusive concepts.

All of which means that 2010 might not be the year of price stability some people thought it would be. The first few months don’t point favorably in that direction: there’s been a lot of volatility thus far, and a lot of this volatility hasn’t made a whole lot of sense.

So, how do you fake out NYMEX? Hunter apparently used a ploy called banging the close: flooding the market near the end of the day with a bunch of sell orders, each of them so large that no one could possible afford to buy them. That much selling pressure, especially at the end of the day, was enough to give prices a nudge downward just in time to hit the closing bell.

At Cost Containment Internation, we’re all for keeping prices down. But keep it legal.

Record storage level? What record storage level?

With today’s announcement of a 245 Bcf withdrawal…substantially higher than projections…the current level of storage is, for the first time in recent memory, BELOW the five-year average. Seems people are willing to turn that thermostat up, and keep it up, when prices are low.

Cold comfort for NYMEX. Since topping $6.00 two weeks back, prices have been following a gradual downward trend. There has been a slow, but steady, increase in the number of short positions (payoff when future prices are lower) versus long positions. Today’s storage report does not appear to be generating much of a rally.

Spring’s a’ comin’, and no amount of good news on the storage front can change that. NYMEX appears to have finally gotten around to purchasing its 2010 calendar, and is taking a shot at considering a timeframe of longer than a few days in putting together an investment strategy.

We looked with great interest a few months back towards the point where NYMEX’s rise out of the dolldrums would either hold or fall. For the winter, it held, sustained mostly by some seriously miserable weather and an energy-consuming public that had decided to afford itself the luxury of warm houses.

We’re approaching another watch point as Winter begins to tail off. With gas supplies pretty much ready to meet any demand and no real discernable uptick in the economy, the question becomes whether NYMEX can remain above $5.00, as virtually everyone has predicted, when the withdrawals stop. February is a short month.

Two stories also bear watching.

The first is that the CFTC finally released its proposal to limit futures trading in the energy sector, and it appears to be sound and fury, signifying nothing. Don’t look for the ETFs and other large speculative funds to be going anywhere, or changing anything, anytime soon. It appears all the talk from last Summer about limiting the effect of speculation on energy prices was just that…talk.

The second is that concern over the environmental impact of “fracking,” the technique at the heart of America’s new wealth in shale-based natural gas, simply will not go away. It has become a central issue in the congressional hearings about ExxonMobile’s bid for natural gas producer XTO Energy Corp. This could severely compromise the move to promote natural gas as the “cleaner” fossil fuel, and add an entirely new environmental controversy on top of the current global warming debate.

It’s cold. It’s warm. But it’s never dull.

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When a massive withdrawal…well above predicted levels…causes NYMEX to drop sharply, you know what it means. NYMEX really doesn’t have a clue.

Today’s storage report came in with a 266 Bcf withdrawal. Not a record, but well above expectations and well above the average. And there’s every indication that next week’s report will also be substantial, since it was only marginally less cold this past week. Despite what everyone continues to report about the amount still left in storage, that record level which threatened to overwhelm the system is quickly heading back down to within spittin’ distance of the 5-year average.

Yet every indication points to warmer weather ahead…no complaints here…and that, combined with some unexpectedly bad economic news over the past week, has given NYMEX a clear case of the jitters. Prices have been bouncing up and down all week, from a high above $6.00 to as low as the $5.40 range. As has been the case for so long in the world of natural gas futures, the only plan is that there is no plan. Grab what you can when you can. Today’s drop pretty much cancels out a steep rise that happened just yesterday. We’ve seen this behavior before.

The key for the energy consumer, looking ahead to 2010 and beyond, is to get past the week-by-week figures and start tracking the major issues. There are going to be some big decisions made, maybe within the coming year, that are going to have a significant impact on the future of natural gas prices.

For example, T Boone Pickens has decided to get out of the wind energy business for the moment, and turn his attention fully to natural gas. The Pickens Plan ran into a bit of a snag involving the complications of laying down massive new electric infrastructure, the difficulty of securing large loans in a collapsed economy, and the diminished attractiveness of green energy at a time of low energy prices. So it’s out with the wind farm, in with the New Alternative Transportation to Give Americans Solutions Act, a House act to increase incentives for natural gas as a transportation fuel.

This is going to be one of the dynamics to watch this year: natural gas versus electricity as a fuel for cars and trucks. Electricity is still a few discoveries short of being a viable replacement for fossil fuels. Natural gas would require fairly simple alterations to vehicles…but would also require a massive new infrastructure that might only be needed for a few years. A lot of money is at stake here for several of the largest industries in the country. We’ll see how it plays out.

By the way, you remember what we said about the value of rig count as an indicator last year? US natural gas production in 2009 rose almost 4% from the year before, making us the largest natural gas producer in the world for the year. As we said, you’re going to need a new set of eyes to understand what’s going on moving forward.

A fairly uneventful weekly report…the 153 Bcf drawdown was pretty much spot on to predictions…is making for a fairly uneventful day on NYMEX. NYMEX finally broke through the $6.00 barrier yesterday on news of continued weather woes across the country (-52° wind chills in North Dakota!), and investors appear to be satisfied to take a few profits after yesterday’s substantial jump, but otherwise to stand pat.

In the world of NYMEX, a cold shot is the same thing as a shot in the arm.

However, today marks a significant event for the NYMEX futures prices, and if you go check the NYMEX prices, you should spot it right away. That’s right: front month is higher than next month. Next month, March, is higher than April. This is the first time that’s happened since last February.

This condition carries the curious name of backwardation, and it’s something NYMEX only dreamed about during the dark days of last Fall, when natural gas prices flirted with total collapse. And if you’ve been reading The BUZZ regularly, you should able to guess who we’re going to mention next.

That’s right: UNG.

The price collapse that started at the tail end of last Summer pretty much took UNG out of the equation in NYMEX. UNG, and other ETFs, work largely on a principle of buying front month contracts in bulk, and selling ahead of the expiration date, rolling them over into new front-month contracts. This strategy failed miserably at a time when the front-month contracts were routinely a dollar or more below the next month rollover. But the current market is right up UNG’s alley.

Which means that, as much as we should be checking the thermometer, we’re going to be checking to see if there’s a fresh influx of investment into the natural gas ETFs. All the evidence of the markets suggests that investors are still looking for the quick and easy payday, and ETFs…when they work…fit that bill for investors of all sizes. UNG came out of 2009 with a pretty tarnished reputation, but as we’ve seen, investors have a very short memory these days.

Which gives us something to keep an eye on, other than the falling snow. For the moment, temperatures are dropping all over the country. NYMEX appears to be in a mood not to do likewise.

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