In reaction to moderating weather forecasts for this week and amid some very negative technical factors, natural gas futures tumbled lower Friday, as traders liquidated positions ahead of the weekend. The November contract was the hardest hit by the selling pressure, slipping 18.7 cents to close at $2.227. The winter strip was not far behind, giving back 14.5 cents to finish at $2.657.

For bull traders, the latter part of last week was a case of feast, then famine. On Thursday they had their pick of price-constructive factors, as a smaller-than-expected storage injection figure combined with the bullish one-two of tropical activity and cool weather forecasts for this week. By Friday, however, the picture had changed dramatically. Instead of looking at the small injection, traders were looking at the small underground storage capacity left still to be filled. Instead of focusing on the cooler temperatures predicted for the Upper Plains this week, they honed in on the above-normal temperatures expected in the Northeast U.S. Even the tropical depression seemed to play favorite to the bear, as it waited until after the market had closed to become a Tropical Storm.

At 4 p.m. EDT Friday the National Hurricane Center announced that Tropical Depression 11 had become the ninth tropical storm of the Atlantic hurricane season. Packing 60 mph winds, Iris was located about 155 miles south of Puerto Rico as of press time Friday. The storm was expected to continue on its west/northwest course at 17 mph through the weekend, possibly achieving hurricane status as early as Saturday.

Several market watchers admitted that if the storm had matured before the 2 p.m. futures close Friday, the market might have been a little more cautious with its selling. After all, the last thing traders want to do is go home short when there is the potential for the formation of a hurricane in the Gulf of Mexico.

However, traders may have been guided by a more imminent threat Friday. “This market is back in its Gulf War mentality,” a seasoned risk manager said. “Traders are eschewing both the long and short side of the market, heading into the weekend. The belief out there is that it will be better to be flat if the U.S. conducts some sort of military strike over the weekend…. We ran up on Thursday and came right back off on Friday, as those new longs exited their positions.”

Looking ahead, traders agreed that neither the technical nor the fundamental picture is very promising for bulls. With storage nearing 90% full at 2,914 Bcf, only so much more gas can be injected. To make matters worse, there was considerable rumor and speculation circulating in the trading community Friday that the American Gas Association would revise upward last week’s 66 Bcf injection figure this week.

Traders have been particularly critical of the AGA lately, not only because of its frequent storage data revisions, but also because the organization will not release the correction until the following Wednesday, allowing the market to trade under false pretenses for an entire week. However, even without the upward revision, storage is approaching record levels with at least five more weeks in the refill season. “If winter weather does not show up in the last week of October through the first two weeks of November, prices are going to get punished,” the risk manager continued.

Technicals do not look much better. By moving above and then crashing below, both its 3- and 10-day moving average late last week, the November contract sent a message that it was not ready for a sustained push higher. By virtue of its $2.227 close, the prompt month has closed lower each of the last three weeks, paving the way for a retest of last Monday’s $2.14 life of contract low. Once that is broken, market watchers look for a push to recent continuation chart lows down to $1.76.

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