The bears made it a clean sweep for the week on Friday as July natural gas futures dropped an additional 21.8 cents to finish at $7.130. The cumulative result of the five consecutive lower closes was a 78.8-cent drop from the previous Friday.

The $7.065 regular session low recorded Friday marks the lowest a prompt month has traded in just over three months. On March 21, April natural gas recorded a low of $6.910. The real question now is whether the range of the last couple of months is still intact, or did Friday's action finally punch the market out of its long-term rut. Some market watchers were quick to note that the market's behavior Friday could lead to even more losses this week.

"The thing that really surprised me Friday was that we didn't have any bounce at all. Quite often when a market trades hard in one direction from Monday through Thursday, there will at least be some profit taking on Friday as traders take a few chips off the table. That just did not happen here," said Tim Evans, an analyst with Citigroup in New York. "That sends the even more bearish message that the market has fallen and can't get up. Psychologically, there is a lot of disappointment, and there is really no one who becomes more adamantly bearish than a disappointed bull."

The analyst noted that trading down to a three-month low definitely creates a little different perspective of things. "Yes, we are down at the bottom end of the range, but moves like this beg the question of whether we are still in the trading range, or is there any larger economic message being conveyed here," he said. "Aggressive moves also force people to wonder whether the fundamentals or the exchange are broken. I'm not sure anything went wrong. I think ultimately we'll find that the system worked."

Following a convincing five-day down streak, Evans said the beginning of a new week will offer a lot of answers on the market's future direction. "Just a weekend itself can break a market's momentum. People become a little less aggressive in their actions after the break," he said. "Weekends give people a chance to step back and reevaluate, but we will also have to see what the weather forecasts formed over the weekend are calling for."

In discussing support levels, Evans said that instead of being in the "magic number school," he is more in the simple mode of the lower the market goes, the more bullish he gets. Speaking to clients, Evans said the market is entering the territory where there is some incentive for fuel switching from residual oil to natural gas, which could turn the price direction around.

Looking at the Commodity Futures Trading Commission's Commitments of Traders data released Friday for positions as of June 19, Evans noted that reportable noncommercial traders were at another new all-time net short position. "Combining futures and options data, they are net short 87,785 contracts," he said. "By Friday [June 22], they might have been at 100,000 net short positions. This is another potential source of support because that number simply represents future buying, whether they get it at a price they like, or they have to cover at a price level they don't like. That slew of buying will put a floor under the price and chase the price higher if the noncommercial traders come under a little more fundamental pressure."

With Thursday marking the official first day of summer, enerjay LLC broker Jay Levine said the season of "heat, hot dogs and hurricanes" has officially begun, but you wouldn't be able to tell by looking at the current natural gas futures market.

"You can say natural gas had no business trading as high as it did -- i.e., over $8 -- without 'firmer ground' (and fundamental justification) and you'd be fundamentally right, but the same can probably be said for crude and the [petroleum] products, which likely aren't nearly as 'bullish' as current prices would have you believe," he said. "It really doesn't matter since...you may see one thing, I may see another, and the market will always have a mind of its own -- that and the price is always right."

From a fundamental standpoint, what was thought to be the primary ammunition for the bulls, hot weather and tropical disturbances, look to be headed down different paths. According to Jim Ritterbusch of Ritterbusch and Associates, inventories are likely to build at a slower rate due to warmer temperatures, and it's possible the market could see some withdrawals from storage. Recent data from the National Oceanic and Atmospheric Administration (NOAA) indicates a long hot July is in store for much of the country, but conditions for the formation of tropical activity are not as strong as previously thought (see Daily GPI, June 22).

"While hurricane premiums had been popping up in the late summer/early fall portion of the curve, Thursday's NOAA indications suggesting a delayed La Nina impact until late in the year tended to force some storm premium out of the pricing structure. As the weather factor shifts from bullish to bearish, the importance of a supply surplus tends to increase," Ritterbusch said.

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