Bringing the streak to six consecutive lower closes and a loss of nearly a dollar, July natural gas futures on Monday dipped below $7 to close at $6.940, down 19 cents from Friday's close. With expiration around the corner on Wednesday, the prompt month has shed 97.8 cents since its June 15 close at $7.918.

To find trading below Monday's $6.910 low on the perpetual chart, you would have to travel all of the way back to March 20, when the April futures contract recorded a $6.880 low. If July is able to venture below $6.820, it will be the lowest a prompt month has traded since the February contract did it back on Jan. 19.

"I was a little surprised to see we were heading lower once again on Monday. I had kind of figured that Friday was it. It really looked like Friday's move was the dump, and that we might rebound Monday," said Tom Saal, a broker with Commercial Brokerage Corp. in Miami. "With this kind of move occurring at the beginning of an expiring contract, you have to expect this is people getting out of the July contract. Friday looked like a textbook-example long liquidation pattern based on Market Profile. On Monday, the pattern is not quite as definitive in one way or the other."

Commenting on the breach of $7, Saal said the move begs an even grander question. "The real thing to watch here is whether we can get back up to settle near $7.500, because that seems to be the general level where we have settled the last several months," he said. Despite being over half a dollar away from that price level, Saal said the July contract could still rebound to that level before going off of the board on Wednesday. "Sure, it can happen," he said. "We are talking about the natural gas market. We could go 50 cents in either direction here."

The last four prompt months have expired within the $7.50s. The March contract went off the board earlier this year at $7.547 and the April and May contracts expired at $7.558 and $7.508, respectively. Late last month, the June contract finished its run at $7.591. Whether the July contract will follow suit remains to be seen.

"In all fairness to the bulls, we really haven't had any weather to get people concerned. I think there was a little bit of potential for some early bad weather already factored into the market," Saal said. "Now that it hasn't materialized, the market has given some of that premium up. The thing you have to remember here is that summer only officially began last Thursday, so we've got a ways to go here."

Commenting on the six-day price slide, the broker said it is hard to tell these days who is behind any one move. "With the advent of Globex, your players are now behind screens, so you can't see them reveal themselves in the pit like you used to be able to," he added.

Some top traders note a change in both the technical and fundamental dynamics affecting the markets. Mike DeVooght of DEVO Capital, a Colorado trading and risk management firm, noted that the selling "intensified" once the key support levels at $7.600 and $7.350 were broken. "Storage levels are adequate, demand is lackluster, and it is almost the beginning of July and we have not seen any weather moving headlines," he said.

Natural gas bears fondly remember last year's summer price meltdown that took spot futures down to $4.050 by Sept. 27 as any significant tropical weather failed to develop. Yet if last year's experience is any guide, they may want to keep their cards close to the vest for now. During July 2006 spot futures rose from $5.765 to $8.211 by July 31, as hot weather frayed tempers and tempered injections.

Tropical weather is still the 800-pound gorilla in the room, and a major driver of steady if not higher prices has been the tropical weather outlook and the likelihood of Gulf hurricanes at least stalling injections if not causing Katrina-like damage to facilities and infrastructure.

Late last week that all changed with the release of data from the National Oceanics and Atmospheric Administration (NOAA) (see Daily GPI, June 22). It said that conditions were less favorable for the formation of tropical storm development than earlier thought. Specifically NOAA said earlier in the year that a rapid decrease in Sea Surface Temperature (SST) anomalies, the development of below normal SSTs along the South American coast, and model predictions favored a transition to La Nina conditions (useful for tropical storm development) by mid-2007. More recently, however, below-normal SSTs have not developed in the Central Pacific and subsurface ocean temperatures have become slightly above normal, thus making "a transition to La Nina conditions much less likely in the next few months than had appeared earlier in the year."

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