Despite double-digit physical market increases and an earlyretest of the $2.80 level, natural gas futures tanked yesterday astraders weighed the impact of warm weather forecasts for the firstpart of October. After holding in the high $2.70s for most of themorning Monday, the November contract was hit with a round ofselling in the afternoon that pushed the price 16.8 cents lower toclose at $2.625.

Coming into the week, traders were in agreement the almost50-cent spread between spot cash prices and near month futures hadto tighten. However, few were prepared for the spread to compress30 cents in just one day. Most agreed weather, both past andfuture, is largely to blame. While futures traders were gauging thenegative effect of forecasts calling for above-normal temperatures,cash traders were struggling to make up imbalances caused by coolerthan expected weekend temperatures in key Midwest market areas.

According to the National Weather Service, the entire westernUnited States is expected to see above-normal temperatures Oct.10-14. Only the extreme Southeast and Northeast corners of thecountry are predicted to see below-normal readings.

For Tim Evans of New York-based Thompson Global Markets, it’snot where the large swath of above normal temperatures will belocated this weekend that concerns him, but rather where it willmove toward the middle of the month. Weather patterns typicallymove west to east and if that happens, the East will have to waitfor any considerably heating demand, he said.

Does that mean the November contract will suffer the sub-$ 2.00pricing like last year’s contract? “Probably not,” continued Evansdrawing two distinctions between this year and last. The winterweather outlook is more supportive and that will likely createfavorable year-on-year storage comparisons. And, crude oil futurescontinue to be an associated bullish influence.

Support, says Evans, exists first at $2.60, which is the low forthe November contract from September 2. The next stop would be the$2.406 low from the daily continuation chart.

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