Natural gas futures gapped lower at the open and never looked back Monday as traders digested the latest private and governmental weather forecasts that suggest that the Eastern U.S. will be spared of any extended period of hot weather through at least the next couple of weeks. The July contract took the selling pressure squarely on the chin, dropping 29.6 cents to a new 11-month low at $3.446.

Traders polled by NGI were almost unanimous in their assessments that forecasts for mild weather were the culprit of yesterday’s selling spree. According to the latest six- to 10-day forecast released Monday by the National Weather Service, below-normal temperatures are expected early next week in the Northeast corner of the country as well as East Texas. The West, meanwhile, can expect slightly above-normal readings.

“We do not see any change to this pattern for the next few weeks,” said prominent industry meteorologist Jon Davis of Salomon Smith Barney. “The favored area for ridging, and its associated heat and dryness, will be the Rockies. The favored area for troughing, and its associated cooler and wetter bias, will be near or just off the East Coast. This does not mean that locales such as the Northeast and Mid-Atlantic region are going to be cool every day. In fact, this area is going to have a two to three day stretch of very warm weather during the middle of this week. With this ding of a pattern in place, though, the eastern U.S. will not be involved in any extended periods of excessive heat as any warm ups are brief and not extreme in magnitude,” he said.

For Kyle Cooper, also with Salomon Smith Barney, it is this weak demand component coupled with seemingly plentiful supply that continues to dictate the price direction. By doing a regression analysis using historical storage injection figures versus temperatures, Cooper calculates supply to be outstripping demand by 3 to 4 Bcf/d more than it has historically (five to seven years) and a whopping 6 to 7 Bcf/d more than last year. Until we get the fundamental picture in better balance, price could continue to fall, he reasoned.

While admitting that sub-$3.00 prices remain just around the corner, Jay Levine of Advest Inc., would not rule out a quick bounce to the upside. Citing oversold conditions, he recommends aggressive traders take advantage of another lower opening by “nibbling on the long side of the market.” Levine targets support in the $3.24-28 area, followed by $3.10-13, ahead of the psychologically important $3.00 barrier. Initial resistance is in the $3.52-55 area, followed by $3.68-73, he said.

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