After extending as high as $3.14 in early morning over-the-counter Access trade, natural gas futures tumbled lower Thursday as fresh longs headed for the exits ahead of what is shaping up to be a volatile options expiration today. The November contract opened at $3.05, but came under heavy selling pressure about mid-morning Thursday after it was evident the contract had no chance of rebounding to levels seen hours earlier in the computer-only Access trading session. November finished the day at $2.938, more than 20 cents off its Access high but down only 4.3 cents for the session.

A cold front packing snow and fierce winds moved across the Midwest into the East yesterday, prompting futures traders to favor the long side of the market early yesterday. However, even as the mercury dropped yesterday, traders were looking ahead at forecasts calling for a warm up in the eastern half of the country next week. Temperatures are expected to begin to moderate as early as this weekend with high temperatures in Chicago expected to reach the high 50s by Sunday and Monday. Many market watchers believe the cash market will react by moving lower early Friday, paving the way for futures to continue to slide.

And while the short- to medium-term weather forecast point to lower prices, the short-term storage outlook is solidly bullish. With the first real blast of cold air invading the gas reliant Northern Plains and Midwest this week, many analysts look for another bullish knee-jerk reaction by the market when the American Gas Association updates its storage data next Wednesday. Last year the AGA announced a whopping 70 Bcf injection for the same period and the five-year average is a 35 Bcf refill. However, the long-term storage outlook remains solidly bearish. In fact, with storage approaching the 3 Tcf level, natural gas history buffs are recalling the winter of 1998-99 when futures prices fell from a $2.64 peak in October to a $1.625 low in January.

Looking ahead toward options expirations today, traders are mixed. While some favor a continuation of Thursday long liquidation, others would not rule out one more burst to the upside. For one Nymex broker, the impetus may come from locals who may attempt to pressure sellers of November $3.00 call options into the futures market to protect their position. “You could get a pop [Friday] morning, but I suspect that in the afternoon the market will slip back below $3.00 and those calls will expire worthless,” he said.

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