Ken: You are right, it could just plain old supply and demand economics. That coupled with the long capital cycles of the energy market (that is, you see porpoising of prices due the lag of getting oil and gas out of the ground with the capital called to the market by higher prices or driven out of the market by lower prices), could explain the sudden rise and fall of prices in the last year. OR. You could observe that, just as the Hunts tried to corner silver thereby creating an artificial price rise and then price collapse in silver futures, one hedge fund was cautioned by regulators more than once for the size of their position in natural gas futures when the market was running up. Further, surprise, surprise, when the futures market started to converge with the physical market which could not justify double digit gas prices, the very same hedge fund collapsed, losing billions, leading to a similar collapse of the futures market.

Let's see... classic economics or classic manipulation? Your call.

Rick Devaney

I reviewed the EIA site in response you recent article and offer the following comment to the statement under Economics Law.

While you were focusing on the electric generation side of consumption with the statement that demand soared and production didn't. I believe it's just business by the suppliers to find the point of price elasticity. The facts I gathered from the EIA site show overall consumption flat for the past 12 years even though the electric sector was up about 11%. Production has also remained flat (by definition supply equals demand except for storage) for the past 12 years. Reserves however are up over 18%. Finally wellhead prices are up over 300% (not adjusted for inflation.) All of this leads me to my conclusion about price. Unless there are viable substitutes or effective competition between suppliers those prices are going to go up.

George Moore
Senior Research Associate
College of Engineering
University of South Florida

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