Even as temperatures were shattering records throughout much ofthe Northeast,sending electricity prices spiking near $1000/MWhTuesday, natural gas futures were hit with a wave of selling tokick off the week. Speculative fund traders, who have been longpositions for almost three months now, were prominent sellersearly. But trade and local selling was not far behind, sending theAugust contract to its lowest level since the middle of April. Theprompt month finished down 9.6 cents at $2.191, after carving out a$2.16 bottom. Estimated volume was a robust 124,967.

Many traders were at a loss to explain the price erosion in theface of triple-digit temperatures and strong physical marketdemand. By starting the morning in the low $2.30s, Henry Hub cashmarket deals were almost a nickel more than NGI’s $2.27first-of-month index price. However, several traders were quick topoint to forecasts calling for moderating temperatures for the restof the week as a negative feature in yesterday’s market. Traderscame back from the weekend and their first reaction was to buy themarket in sympathy with the weather outside the window. Only aftercloser inspection did they realize that it was a here today, gonetomorrow situation.

According to the six- to 10-day forecast released Monday by theNational Weather Service, temperatures are expected to moderate bythis weekend for the entire eastern half of the country. The NWScalls for below normal temperatures across the Great Lakes, Ohioand Mississippi Valleys, and northern and central Great Plains. TheWest and extreme eastern seaboard are expected to stayabove-normal, the NWS said.

But while a bearish weather outlook may have started thedownward momentum, technical factors quickly added to the sellingpressure. “Long liquidation by funds initiated the move lower andcaught the attention of trade and local sellers once the marketbroke the $2.26 level,” said Ed Kennedy of Miami-based PioneerFutures. The low $2.10s is not out of the question, maintainsKennedy. “First, however the market could take a slight breatherand possibly retest the $2.25 area,” he continued. But Kennedydoesn’t look for much of a rebound and feels that resistance in themid-$2.20s should hold, which could result in another wave ofselling.

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