The natural gas futures market began this week much like it finished off the last one as traders on Monday toyed with both two-year-old support and almost three-year lows. October natural gas, which expires Wednesday, pushed to a low of $4.420 Monday before settling at $4.475, down 15.2 cents on the day.

“I wouldn’t be surprised to see the market hold this $4.50 level as support for a little while here,” said a Washington, DC-based broker. “It has held up pretty well in the past. If you break that level, you don’t really have another support level till $4 even.”

The last time prompt-month futures prices were lower was in late October 2003 when the December 2003 contract reached a $4.400 low. However, a number of market experts still see a support battle with the October 2004 natural gas futures contract’s $4.520 low in mid-September 2004.

“We would need a definitive break of that $4.50 support level before moving even lower,” the broker said. “I certainly think the market is going to have to prove that. I don’t think it is going to come easily, especially when trading over the last two or three days has seen diminished daily ranges and activity levels.”

As for the recent drop in natural gas futures, the broker pointed out that open interest has increased — i.e., the number of contracts outstanding. “As you have an increase in the number of contracts with prices falling, that is seen as a bearish indicator in the market because more and more people are willing to remain short even as prices fall,” he said. “However, that is moderated by volumes, which have been falling over the last week or so. That would tend to ameliorate the impact of the down move to some degree.”

Looking a little further down the road, the broker said if significant cold were to show up this winter, “we would be a lot more bullish” in natural gas, even though storage is likely to be more than comfortable going into the season. As of last week’s Energy Information Administration storage report for the week ended Sept. 15, there is already 3.177 Tcf in underground storage and there is still a month and a half left in the traditional injection season.

“If we do get toward winter and we do start to have some weather that smells like winter, we can eat through the storage inventories easily enough and the problem becomes replacement supply,” the broker said. “Certainly, anybody who is doing land-based drilling is having less success than they have had before.”

Others said they see no near-term reason for the market to change its tune. “The storage trend is bearish, and the temperature outlook is bearish,” said Tim Evans, an energy analyst at Citigroup in New York. “With no fundamental basis for a sustained recovery, there is no reason to fight the trend.”

Weather bulls can take some comfort in weather forecasts showing the Midwest slightly cooler than normal this week. AccuWeather forecasts that high temperatures in Chicago will range from 70 to 58 degrees, and the normal high this time of year is 72. New York City’s highs this week are predicted to fall between 76 and 69 degrees, but the normal high is also 72.

Data from the National Weather Service (NWS) for populous eastern markets shows below average accumulations of heating degree days (HDD) for the week ending Sept. 30. The Mid-Atlantic states of New York, New Jersey and Pennsylvania are forecast to receive 28 HDD, or 18 below normal. New England is expected to see 41 HDD, or 19 below normal. Cooling requirements are negligible. The Mid-Atlantic is predicted to have just one cooling degree day (CDD), or four below normal, and New England should see two CDD, or two above normal.

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