It was a heady couple of days for NYMEX, as prices surged above $5.00 and then hung on, bouncing around within a twenty-cent range as the market sought its comfort level. It all came to an end near the end of day Monday, as prices dropped precipitously to $4.90, and have been trickling down ever since. Today’s spot-on report of an 81 Bcf injection, which brought this year’s levels below last year for the first time, continued the mood of what appears to be a sheepish withdrawal from a giddy high.

We all know what happens to sheep…they get fleeced. NYMEX is taking its profits while it can, and nobody wants to be the last in line. It’s difficult to see at this point how far down things are going to go before they settle.

In terms of news, there is no more reason for this week’s downward turn than there was for the surge of the past two. Weather continues to be hot. Economic indicators released this week were unfavorable, but isolated. The weekly storage report would be making headlines if it weren’t being compared to last year’s record levels and found wanting.

Then there’s the Gulf. A federal judge struck down the Obama administration’s moratorium on offshore drilling, though the administration vowed to take action to reinstate it. Is that what instigated the selloff? If so, NYMEX has developed a taste for fairly risky speculation again…and a lack of taste for any news that doesn’t feed it. There was no clear indication that the moratorium was going to have a pronounced effect on supply. There’s no clear indication that the lifting is, either. But it seems like it was enough to get people to buy in and to sell off.

It all begins to look, if you will pardon us saying this, a bit volatile right now. The past month has seen movement of more than 25% up and down, most of it in fits and starts. A bit of a shock to the system after the predictable patterns of the Spring months. And a sign of what happens in a nervy market with no clear indicators to follow. We said several months ago that we expected NYMEX to keep bouncing; the question now is just how high and low the bouncing is going to be. Hot times, indeed.

How’s the weather in your neck of the woods? Things are fairly mild and pleasant around here. But they’ve definitely heated up over at NYMEX.

After a brief surge and retreat at the $5.00 mark last week, NYMEX put its cares and $4.00 pricing aside, jumped again, and stayed put. It has been comfortably above $5.00 all week. The weekly storage report continues to tell NYMEX exactly what it wants to hear, as yet another week brought a slightly-below-projection injection. Storage levels are within 3 Bcf of last year’s pace and appear poised to fall below for the first time next week.

This time, it appears, it is all about the weather. Basically, NYMEX is taking the bet that production has finally tapered to the point that it won’t be able to handle continued hot weather and the rise in cooling demand. There is optimism that restrictions on offshore drilling won’t be matched by an uptick in unconventional production. And there is hope that the promised dismal hurricane season will do its worst.

On top of this, the ETFs have once again come into play. They lost a lot of investors a pile of money through the end of last year into this spring, as continued low prices turned them into a sucker bet. But the current rally, picking up steam as it has, is catnip for index funds and their strategy of rolling long calls. And a lot of investors, wearied by the volatile ups and downs of the stock market, are figuring that now is the time to get back in.

NYMEX rallied itself through the Winter, and now appears set to rally itself through the Summer as well. The current rally will probably continue to warily work its way upward until the storage reports…or a cold spell…tell it otherwise.

Needless to say, this is all pure speculation. Storage is still at record levels, and the weekly reports have been only marginally below expected levels. The persistence of the current rally, with nothing solid to support it, is beginning to generate suspicion that someone is playing the market. But we’ve seen NYMEX feed off itself, and continue to feed off itself, before. For the moment, prices appear to be following the thermometer. And the thermometer is moving up.

One man’s…or in this case, half a dozen state’s…disaster is another man’s investment opportunity.

NYMEX’s rally picked up legs last week, rising momentarily above $5 on Tuesday. The most likely source for all this optimism is pouring out of a hole in the sea bed in the Gulf of Mexico.

The government-imposed halt in deep-water drilling that is a result of the Gulf oil spill had a result of its own last week, reducing the Gulf of Mexico rig count to 23, the lowest level since August 1993. Overall natural gas rigs dropped by 20 to 947, according to Baker Hughes.

For NYMEX, the Gulf spill may be the gift that keeps on giving, if it continues to affect rig counts and drilling leases. There is a possibility…a slim one, but as we’ve seen, slim is enough to bring out the bulls on NYMEX…that fallout from the spill could result in an even greater cutback in offshore drilling. Then, the question will be whether land-based drilling will be able to make up the difference in production.

A shot in the dark, perhaps, but a shot nonetheless. NYMEX is going for it.

A fairly robust injection report of 99 Bcf, above projections, only dampened the rally momentarily. NYMEX lost its nerve after breaching the $5.00 mark, but now appears poised to reset support and resistance about fifty cents higher than before, between $5.00 and $4.50. Hot weather across the country is helping. And there’s still those hurricanes everyone is talking about, though they have yet to materialize.

That it took a natural disaster of unprecedented proportions to move NYMEX after months of stability should come as no surprise: unprecedented is just the way things go nowadays. An unprecedented rise in natural gas prices in 2008 was followed by an unprecedented worldwide economic collapse in 2009, now followed by an unprecedented fouling of the waters in 2010. We’re open to suggestions for what to expect in 2011.

However else your day may be going, you have one sure reason to be thankful today. You are not Jim Joyce.

In case you missed the papers this morning, he’s the umpire who called Jason Donald safe at first during last night’s Cleveland-Detroit game. Unfortunately, as replay clearly showed, Donald was out. And the decision cost Detroit pitcher Armando Galarraga a perfect game.

Oops.

In the end, you look at the evidence at hand and you make your decision.

Just like NYMEX.

NYMEX has been cautiously riding its latest wave of enthusiasm for more than a week now, climbing gradually…with a short break for a long weekend…and waiting for a clear sign to make a real move. It got what it wanted today, with a report of a surprisingly meager 88 Bcf injection.

Resistance? NYMEX don’t need no stinkin’ resistance! A quick jump past $4.50 ensued, and the rise continues. Right now NYMEX appears poised to end the day around $4.80, a price not seen since mid-March and, coincidentally, the price Bloomberg predicted it would hit.

There are a lot of things fueling the current rise, though taken together they add up to nothing more than a whole lot of positive thinking. Economic indicators are…not bad. June weather predictions are…mildly warm. Hurricane predictions are…strong, but hurricane predictions have been crying wolf every year since Katrina. Backlash from the Gulf Oil spill could conceivably lead to a cutback in offshore drilling…if you choose to believe that. Rig counts are down…by a whopping two rigs.

The evidence is in front of you. Safe or out? NYMEX is saying safe.

Which should make tomorrow an interesting day. It this is just another example of irrational exuberance, we’d look for some quick profit-taking and a fall back within the comfortable range of the past few months. But if that doesn’t happen, then its conceivable that NYMEX is making a serious push to pull prices over $5.00, a place just about everybody in the supply chain would like to see them.

Time to stop taking prices for granted? Your call.