A combination of copious amounts of gas both in the pipe andground, and very little weather demand had the stage set perfectlyfor the futures market to trend lower Monday. But despite all theominous fundamental news and bearish sentiment, few traders wereprepared for the price erosion that occurred in early tradingyesterday. The January contract gapped dramatically lower on theopen and quickly set a $1.97 low in the first half hour of trading.That left the spot month to trade sideways for the rest of the daybefore settling at $1.976. In doing so, the January contractcrushed its previous life-of-contract low of $2.085.

Sources agreed last Wednesday’s American Gas Association Storagereport, which showed a less-than-expected 13 Bcf withdrawal, madethe market an easy sell today. Storage now stands at 3.069 Tcf-427Bcf more than the same time last year.

But the bearish supply estimate was not the sole factor inyesterday’s price move. Warm weather across the nation continues tolimit demand for gas, and forecasts call for the above-normaltemperatures to continue through the first ten days of December.

Fred Gesser of Omaha-based Strategic Weather Services says warmsea surface temperatures in the Central and Western Pacific are thecause of the unseasonably warm temperatures for the lower 48. Thisswath of warm water is helping to produce a relatively flat jetstream that keeps the cold air in Canada, he said. Based on thesesea surface readings, Gesser predicts this weather pattern willcontinue until Dec. 10 when normal temperatures will return, firstto the Midwest, then spreading to the East Coast by mid-month.

How much lower can the market go? A Houston-based trader looksto this morning’s cash market activity for insight. “We saw alittle strength in the cash market before [nomination deadlines].Whether we see that strength continue [this morning] is the $64,000question. I look for the January contract to make a low near the$1.85 level this week, before turning around,” he said.

And by 7 PM last night the market was nearly halfway to his goalwhen the spot month notched another 5.1 cent loss to $1.925 inAccess trading.

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