On a day the entire petroleum complex plunged lower, June natural gas futures, supported by the psychological $6.000 support level, only managed a 15.7 cent drop on Monday to close at $6.123.

Trading as low as $6.045 in Sunday’s overnight Access session, prompt-month natural gas on Monday traded within a slim 14-cent range between $6.080 and $6.220, while the real fireworks occurred in the neighboring petroleum pits. June crude on Monday plummeted $2.63 to close at $69.41/bbl, while June heating oil and June unleaded gasoline dropped 10.17 cents and 12.45 cents, respectively, to settle at $1.9450/gallon and $2.0540/gallon.

Natural gas futures continue to feel the weight of a growing storage glut, along with the lack of necessary demand to do anything about it.

“With the way things have recently been shaking out, I don’t think a $6 test could be far away,” said a Washington, DC-based broker. “We had a major down day in all commodities across the board. Gold saw a big sell-off, copper was down big and the petroleum sector took a big chunk out as well. The downward action in natural gas was relatively mild in comparison.”

On the day, the broker saw the natural gas’ close as “weak” due to a failed intraday rally. “A $6 test is likely, in my opinion,” he said. “There doesn’t seem to be a whole lot of demand stepping in at this price level. Whether that is a psychological dynamic of buyers waiting to see if they can get a lower price, I don’t know. I think there were some calls today inquiring on whether a $5 handle on this market could be expected. That call is coming from a marketer, who is getting it from a client. If that is what they are thinking and they are asking that question, my bet is that is the way they are bidding for it too. As long as the market has bidders willing to pull back in order to attempt to get a cheaper price, a vacuum will be created for prices to continue to grind down.”

Looking at the overwhelming storage surplus, the broker warned that the June-to-December spread and the June-to-January spread are still “at epic levels” for this time of year. At the close Monday, December gas sat at a $4.227 premium to June natural gas, while January 2007 closed $4.972 higher than the June contract.

“Some of that may be because of the fact that there is full storage, so if you are going to do the storage play, you have to make sure there is somewhere to put it,” he said. “I could buy physical gas now and sell December futures, locking in that very nice spread. However, if you can’t find anywhere to store your gas, that whole idea could be short-circuited.”

He also warned against direct comparisons to the path of crude futures. “Until we get some supportive weather, natural gas will likely continue to grind lower,” the broker said. “However, I don’t know whether it has a big flush lower like crude still has.”

Jay Levine, a broker with enerjay LLC warned that strong support resides at $6 or just below it. “Believe me when I say natural gas continues to get pummeled as supplies are ample and demand is not — with the official hurricane season still two weeks off,” Levine said. “It’ll take more than summer heat to make a dent in supplies, and, thus far, even the threat of the hurricane season has done little to elicit little more than a little rally.”

However, the broker noted that could all change. “Need I remind you that there’s nothing historically cheap about $6 natural gas, other than when compared with the rest of the complex — that and little question that the times have surely changed. So even if the pendulum in natural gas has swung — sunk — downward (in typical exaggerated fashion), the longer-term prognosis still points north,” Levine said.

As far as support/resistance goes, the broker said he sees a test of $6 with a rapid sell-off followed immediately by a doubly rapid rise. “Of course, this market has been down-trodden for so long, any rally will likely be pronounced, even if now it appears it’ll be brief,” Levine said. “Up until now all rallies have been met with solid resistance, but one of these day’s that won’t be the case.”

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