Building on Friday’s losses, August natural gas futures gapped 28.6 cents lower at the open Monday and continued to work downward, recording a new low for the move at $6.010 before closing at $6.039, down 40.7 cents on the day.

Traders are being forced to confront reality as the pillars of the bullish case — hot weather and tropical activity — are weak at best. The $6.01 tick broke the previous front-month low for the year of $6.030, which was recorded on Jan. 5. The next support level of note is the $5.740 low from Dec. 27, 2006.

“After being on life support after Friday’s action, Monday’s down market wiped out all of our bullish indicators,” said a Washington, DC-based broker. “Maybe we do have one more down leg to go here. There really is not much of anything to speak of for the bulls to hope for. As of now, I have to be back in the bearish camp, because gapping lower at the open following a big down day Friday is not bullish in any way, shape or form.”

Looking at the next levels of support, the broker said the $5.740 from late December is a major point to look at. “Even if you said we were in a trading range between $6.300 to $6.800, you have to say we have busted below that. If you drop 50 cents from $6.300 then you are down at that $5.800 level, which is pretty close to the $5.740 low again, so a number of measurements get us down to that important support zone.”

Bulls aren’t likely to receive any near-term reprieve in the form of sustained hot temperatures. John Dee, a private meteorologist, predicted “above-average temperatures will dominate much of the western U.S., while temperatures in the East will run below average in most cases for the next week to 10 days. The core of the hottest temperatures will occur across the Rockies and Plains for the next five to seven days, with temperatures running average to even a bit below across at least the coastal sections of the West.”

That contrasts sharply with conditions in the East, he pointed out, where temperatures below normal will be in place for much of the next five to seven days. “As we work through the end of next week, coastal sections of the West look to warm and by the very end of the week, the eastern U.S. could warm a bit as well, but only to average levels,” he said.

Taking a look at storm activity, the tropics still remain mostly quiet. On Monday afternoon, the National Hurricane Center (NHC) said that while a weak area of low pressure centered about 350 miles north of Bermuda is moving northward, it is not expected to grow.

“The associated shower activity is currently minimal and development is unlikely before the system moves over colder sea surface temperatures north of the Gulf stream,” the NHC said. “Elsewhere, tropical cyclone formation is not expected during the next 48 hours.”

Traders Friday discussing the 26-cent drubbing of the August contract were talking both fundamentals and technicals. Neither factor looked promising. “The selling [Friday] looked like fund or bank selling, and guys are talking about the Independence Hub, that it could make a huge increase in domestic supplies,” said a New York floor trader. The Independence Hub is a Gulf of Mexico production facility located in 8,000 feet of water that has recently started to ramp up production. It is expected to produce up to 1 Bcf/d when it is fully operational in late 2007 (see Daily GPI, July 23).

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