With moderating temperatures, a hurricane lull and an upcomingholiday weekend pulling the rug out from under bidweek cash prices,the Nymex October futures contract also decided to take the plungeyesterday, plummeting into the $2.70s before settling in thelow-$2.80s and adding to last week’s market dip. Some observersbelieve October is destined to test at least the $2.60s before thisdrop is over.

After moving up 4.7 cents on Monday, the October contract took a14.4-cent nose dive Tuesday to $2.825/MMBtu. Prices came off hardearly on profit taking, one source said. Prices turned sharplylower in morning trading and continuing down all afternoon exceptfor a minor late-day blip into the mid-$2.80s.

Susannah Hardesty of Energy Research and Trading Inc. said shewas surprised only by the fact that it hadn’t happened a dayearlier. “The only thing that surprised me a little bit was howstrong the market was yesterday,” she said. “I’m looking for it tocontinue to drop lower. My downside range is something between$2.62 and $2.35.” Hardesty places major support at $2.62, which isthe continuation of the downtrend line that stretches from theall-time high posted in December 1996 across the $3.85 high fromOctober 1997.

“This [drop] should last another week or two barring newhurricane activity,” said Hardesty. “This is more than acorrection. It’s a short-term move to our final low before the endof the year.”

Other observers noted the hurricane activity has subsided for atleast a week. The National Hurricane Center said yesterday atropical wave located off the African coast showed signs oforganization but will be slow to develop if it does at all.Elsewhere, tropical storm formation isn’t expected in theshort-term.

“There’s nothing fundamentally that could bull this markethigher,” said one trader. “Low production already was factored inprior to the heat and hurricanes that pushed futures higher. We’rejust moving back down after a little hype.”

The downturn is causing non-commercial speculative fund groupsto “liquidate their long positions in a big way,” Hardesty added.”That adds additional selling pressure. There’s still is a lot ofspec fund length. It got up near its extreme high in terms of arelative percent of total open interest. There’s still a lot ofspec funds closing out on this down move.”

Another bit of bearish fundamental news could come today if theAmerican Gas Association shows moderating temperatures and fallingcash prices have allowed stronger storage injections. A couplesources pegged injections at slightly more than last week’s 50 Bcf,but at least one trader sees “more than 65 Bcf” being put instorage. Others, however, noted that production shut-ins because ofHurricane Bret could have significantly reduced storage injections.

The average injection rate for the week ending Aug. 27 since1994 has been 74 Bcf, but last year during the same week only 57Bcf was injected, according to historical AGA data.

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