After gapping higher on the open and racing to new highs,natural gas futures were hit with a powerful wave of selling latein the session that trimmed most of yesterday’s gains and lefttraders wondering if more selling is in store for the market on itsexpiration day today.

The October contract finished at $5.324, up 4.8 cents for thesession, but off considerably from its $5.445 prompt-month highetched just hours earlier.

Heading into Tuesday’s session, traders were in agreement thatthe market would test resistance early and that the outcome woulddecide the market’s direction for the day. As it turns out, thatdidn’t take long because the market sailed right through $5.30resistance with a $5.34 opening trade. The next stop was theOctober contract’s all-time high of $5.385, but that too was littlemore than a speed bump for local and commercial buyers.

However, after watching prices and profits climb throughout muchof the session, those with long exposures decided to take profitsahead of the close yesterday. “We sat up there for so long italmost lulled people to sleep,” said a Houston-based risk manager.”Everyone who wanted to be long was long already, and the prospectof going home for the evening with fresh longs just off all-timehighs was a little more than the average trader was willing to dealwith.”

Also of impact Tuesday, he continued, was options-relatedfutures selling by traders who had sold $5.50 call options earlierin the day. “As they watched the October contract approach the$5.50 area, they dumped 500 to 1,000 contracts to ensure theiroptions expired unexercised.”

Looking ahead, traders agree that the difficult job of pickingthe market’s direction on expiration day is further complicated bythe triple threat of news that the market will first need todigest. In addition to the latest API and DOE oil data releasedlast night and this morning, the market will focus on fresh naturalgas storage information early this afternoon. Expectations for thatreport are calling for a net injection of 60-76 Bcf, which ifrealized would fall short of last year’s 78 Bcf build.Comparatively, the five-year average for this week is 72 Bcf.

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