After the May natural gas futures contract inexplicably shot 30.1 cents higher on Monday, traders on Tuesday corrected the situation, but they waited until the last minute to do so. The prompt month ended up closing out Tuesday’s regular session at $9.724, down 37.7 cents from Monday’s finish.

For most of the session the correction appeared to be of the 15-cent to 20-cent variety as the May contract at 1:30 p.m. EDT was trading at $9.950. However, in the last hour of trading the front month plummeted to a low of $9.680 before settling nearby. May crude added to Monday’s $4.04 decline by dropping an additional 60 cents Tuesday to close at $100.98/bbl.

“I don’t really know what to say here,” said Tom Saal of Commercial Brokerage Corp. in Miami. “Natural gas futures action on Tuesday was pretty boring, but then we had that significant sell-off in the last 15 minutes of the regular session. While I am not surprised we are off following Monday’s spike, the speed and volume of Tuesday’s drop was surprising.”

Saal noted the contrast of the contract’s trading during the first two days of the week. “It looked like a lot of commodities took a dive on Monday, but natural gas futures remained firm. On Tuesday, natural gas futures took the fall. Someone really sold the heck out of it,” he said. “We are heading into the shoulder month and weather should start to moderate, so the physical side of the market would be for prices to come off. However, what we have seen is people are willing to pay a lot for gas and the funds are still fairly short. They are not as short as they were but they are still net short. So both bears and bulls have support for their cases, which makes this market tough to call right here. It is about as hard as picking the Final Four!”

Traders and analysts are attempting to balance thin supplies, expected indications of a weakening economy and a stumbling petroleum complex. Supply bulls see the cupboard close to bare as the industry begins the injection season. “We consider the 1.4 Tcf area as a normal storage point with which to begin the injection season,” said Jim Ritterbusch of Ritterbusch and Associates. Currently, supplies are a thin 1.277 Tcf and the weather outlook suggests more withdrawals. “We would reiterate our view that a supply base almost 15% below normal at the beginning of the second quarter will require a high pricing environment in order to provide for a level of supply comfort at the beginning the next heating cycle,” he said in a note to clients.

MDAEarthsat in its Tuesday morning forecast predicted below-normal temperatures across the Great Lakes and Ohio Valley in the six- to 10-day period. “Overall, the period could be more volatile than currently forecast with an active storm track stretched from the Southern Plains to the Northeast,” said meteorologist Matt Rogers. He added that in the East “high pressure loosens its grip and temperatures by day 10 rise near to or above normal into the Ohio Valley and Mid-Atlantic once again.”

©Copyright 2008Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.