Deflated by the news that Hurricane Isabel would miss the Gulf of Mexico, the natural gas futures market sunk to new 10-day lows Monday morning as traders added to their already significant short holdings. However, after an initial flurry, selling failed to punch prices below support at $4.60, and the market shifted into a sideways-to-higher trading channel for the remainder of the session. October futures finished at $4.685, down 8.1 cents for the session, but in the upper half of its $4.62-725 trading band. At 50,461, estimated volume was light.

As expected, Hurricane Isabel made a gentle turn to the Northwest over the weekend. Forecasts that now place it off the coast of the Carolinas or the Mid-Atlantic states all but rule out the storm finding its way into the Gulf of Mexico and the natural gas production assets that exist there. To add insult to injury for bulls, the storm will likely bring rain and milder temperatures that will ultimately reduce cooling demand in that populous area of the country.

“Isabel now has virtually no chance of entering the Gulf of Mexico and should actually be a rather bearish event by creating quite a bit of demand loss,” said Kyle Cooper of Citigroup. Looking ahead, Cooper recognizes the market is caught in somewhat of a pickle with bearish fundamentals flying in the face of the market’s seasonal tendency to move higher heading into the heating season. “That fear was certainly prevalent [Monday], with the market again bouncing off session lows,” he continued.

“Natural gas had every reason to drop further than it did [Monday], chipped in Jay Levine of New Hampshire-based Advest. Specifically, he pointed to the bearish trifecta of Isabel heading north, reduced demand load and the likelihood of another large storage injection figure Thursday. With three strikes against it Monday, you might of thought natural gas would lose more than 8.1 cents, he reasoned.

Looking ahead toward Thursday’s inventory release, early expectations are centered on a 85-96 Bcf refill, which would compare against a 69 Bcf build last year, a 76 Bcf five-year average injection, and the 97 Bcf addition released last week. With eight weeks left in the injection cycle, storage is at 2,486 Bcf. At the rate of 64 Bcf/week, storage would reach the 3,000 Bcf “comfort zone” by the start of the withdrawal season Nov. 1.

In daily technicals, a break below support at $4.55 would be crushing for this market and could lead to a free-fall to the $4.10-20 area. On the upside, the $5.00 mark has proved stout as resistance and might only be broken following the first blast of cold air this fall.

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