As tropical depression six fizzled into a tropical wave with slim chances of revival, so did any hope for a gas futures market reversal. The August contract quickly resumed its downward course in overnight trading, and sailed right down through $5 Tuesday morning to a low of $4.84. The contract ended the day down 23.9 cents at $4.868, just a few cents above its daily low. Its daily high of $5.040 was reached just after the opening bell.

“This recent trend of storage injections has just put a cap on the market and put it on notice that storage is getting filled at a better than expected rate,” noted Advest Inc. futures broker Jay Levine. He expects that trend to continue with this week’s EIA storage report, which will show something “perhaps lower than recent injections,” but still enough to cut into the deficit. Levine is expecting an 89 Bcf injection. The range of expectations is 65-95 Bcf, with the majority looking for something in the 80s Bcf because of the cooler than expected weather last week, which most apparently believe will more than offset any supply cuts from Hurricane Claudette.

Levine said technical support for the near-month futures contract is now in the low $4.80s to mid-$4.70s. He noted that the crude oil market also is helping put downward pressure on gas prices. News that Saddam Hussein’s two sons were killed in a U.S. special forces attack pushed August crude prices down about $2/bbl.

But the only significant fundamental factor that was supporting gas prices was the storm. The National Weather Service downgraded it to a tropical wave late Monday and said there was little chance of it strengthening. “My guy at Weather 2000 still believes you haven’t heard the last of [the storm],” said Levine.

With continuing strong storage injections, Levine predicts that it won’t be long until the winter futures strip, which is at $5.309, falls below $5.

He said if near-month prices fall below $4.70s “I think you are going to drop another 20 cents pretty quickly. My major long-term support comes in around $4.25,” he said, doubting that could be reached before the August contract goes off the board next Tuesday.

However, Tim Evans, futures analysts with IFR Pegasus, said the August contract has a history of falling into a “dead faint” at the end. He isn’t ruling out a drop to $4.10. But he said the contract first must make it through the $4.69 low from Dec. 31, 2002 (after which the market climbed through January and February to more than $10) and the $4.44 resistance from October-November 2002 highs.

The $4.69 area was “your last bargain because January and February were straight up.” He noted that the $4.44 area was where the market struggled to punch through resistance. “It may prevent the market from breaking all the way down to the $4.10 level, which is the uptrend line off the 2002 spot lows.

“What gets you to that $4.10 level is what I have seen historically happen to the August contract when you don’t have the heat and you don’t have a hurricane knocking on the door. The contract just goes off the board in a dead faint. It hasn’t happened recently but if you go back to the mid-1990s there were a couple of real ugly August expirations.”

Eventually the market will find a bottom and that is likely to occur with the August or the September contracts, Evans said. If the upside is tested again, the contract will have to bust through the $5.23 high from July 15. A breakout above $5.23 would confirm that a bottom has been reached and set off a bout of short covering that could lead to targeted longer-term resistance in the high $5.60s, according to Evans.

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