Dropping beneath $4.00 for the first time since early August, natural gas futures continued on the slippery slope downward Friday as traders pressured the market lower for the third straight day. With Friday’s 8.1-cent decline and $3.973 close, the June contract has tumbled 96.7 cents since becoming spot contract at Nymex a month ago. June expires at 3:10 p.m. (EDT) today.

As expected, options-related volatility was the name of the game Friday as traders focused on the $4.00 strike, where open interest on puts was more than 16,000. Accordingly, a broker said that the sellers of those puts had the incentive to keep the June futures price at or above the $4.00 level, thereby rendering the puts worthless. As it turned out, however, they were unsuccessful and futures dipped to $3.95 before rebounding modestly in the pre-holiday abbreviated session.

Looking ahead to June’s expiration Tuesday, some market watchers believe that the weather, and not storage or technicals, will have the last word on the contract’s final resting place. Although revised forecasts will hold the ultimate key, Friday’s release of a fresh six-to 10-day forecast does not paint a very constructive picture for price bulls. According to the National Weather Service, temperatures over the first several days of June will be a mixed bag, ranging from above-normal in the central United States to normal in the West. The most disconcerting news for bulls, however, has to be the forecast for the eastern U.S., where continued below-normal temperatures will likely keep air conditioning demand at a minimum.

Further out on the price landscape, brokers and analysts are beginning to look for a bottom. While noting that fundamentals remain weak, Tim Evans of New York-based IFR Pegasus is cautious of the market’s upside potential. “Rising temperatures could trigger a push higher, similar to the run to the May 16 peak, and short covering of [the week prior’s] 21,442 contracts of fund net short exposure could exaggerate the move [higher],” he said.

In July technicals, Peter Hattersley of New York-based Rafferty Energy Group sees support in the $3.86-4.00 area. “You’ve got to be long here. Sure the market could move lower, but you have a somewhat low risk area to try and pick a bottom…Let the market prove you wrong. If we get a settlement 5 cents below $3.86, you sell out of the position,” he said.

Evans agrees with Hattersley in principle, but lowers his support range to the $3.61-76 area, which coincides with channel support for July at $3.73. In order for him to issue a buy recommendation, however, Evans needs to see a little bounce first. He looks to initiate a long position with a $4.31 buy stop, risking to a sell-stop at $4.14.

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