Pressured by the combination of mild weather forecasts and bearish storage news expected Thursday, the natural gas futures market continued its downward spiral Tuesday by recording another gap-lower open and a new five-week low.

However, the market was unable to squeeze out an additional penny to the downside, leaving the $4.43 low for the year intact and giving buyers the opportunity to pick up some bargain gas.

That allowed the November contract to move quietly higher for much of its penultimate trading session. However, it was unable to move above unchanged on the day, closing down 2.6 cents at $4.486. Estimated volume was 102,556 — a volume not uncommon for the day before a contract’s expiration.

All told, the November contract has fallen a whopping $1.314 off its $5.80 high notched just 12 trading sessions ago. Though several technical trading systems had called for the sell-off, most market-watchers chalk up the price weakness to good ol’ fashioned fundamental bearishness. For the past seven months, storage has been a weekly reminder that inventories are being replenished at a record level.

That is unlikely to end any time soon, according to analysts calling for another large storage injection to be released this Thursday. In a rare case of agreement, both Kyle Cooper of Citigroup and Tim Evans of IFR Pegasus call for a build of 60-70 Bcf. If realized, a number of that magnitude would easily surpass the five-year average refill of 36 Bcf, in addition to lifting inventories to just below the 3,100 Bcf level. Based on the weather this week, the stage is set for another sizable injection in the following Thursday’s release.

According to the latest six- to 10-day forecast released Tuesday by the National Weather Service, above normal temperatures are expected next week across a backward L-shaped area of the country extending from New Hampshire to West Texas. That will be sharply contrasted by below normal temperatures across the western half of the nation.

However, because so much gas demand hinges on the more populous East and South, the net impact of the weather forecast has been — and remains — bearish. The question that traders ask themselves is, when has the impact of that negative news been fully priced into the market? Though remaining bearish in the longer term on pure supply-demand economics, Evans sees the potential for a soft-landing at current levels. “December natural gas set a new low at $4.738, a fresh benchmark for what would constitute an extension of the recent decline. Failed support at $4.86 is now the nearby resistance, with a swing past that point suggesting a try for the $4.95-98 area,” he wrote in a note to clients Tuesday.

Ed Kennedy of Commercial Brokerage Corp in Miami agrees, but remains focused on the November contract, which is set to expire at 2:30 p.m. EST Wednesday. “[The market] is oversold. Look for short-covering unless you get a settlement below $4.39.”

©Copyright 2003 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.