Despite reduced volumes due to the Columbus Day holiday, November natural gas futures still recorded a significant move lower to start the week. The contract traded between $6.845 and $7.160 before closing out Monday’s regular session at $6.846, down 22.7 cents from Friday’s close.

Some market experts see futures as trading within a range from $6.750 up to approximately $7.350. After breaking above the range to a high of $7.470 last week, the prompt month is now working its way lower to probe the downside, aided by the fact that the Gulf of Mexico storm situation cleared over the weekend.

“I think the market pressed the upside last week and then has worked lower over the last couple of sessions,” said Tom Saal with Commercial Brokerage Corp. in Miami. “We are now down near support at $6.800 to $6.750. That has proven to be pretty solid support and cash prices are currently in and around this level. We are definitely in a big range. We went up last week and poked through the top of it, but the market action is more exaggerated now with the growth of electronic trading.

“With Globex trading, prices are going higher than they normally would go and lower than you would normally expect. It is a problem of instantaneous liquidity. You also can’t see what the other guy is doing anymore because most of it is on-line.”

Looking ahead, Saal said with the hurricane season reaching its conclusion, the winter weather expectations will be coming to the forefront. “One thing I find interesting is the throttling back of these storage injections the last couple of weeks,” he said. “We will have to see if this continues through the rest of the injection season. While we still have a lot of gas in the ground, we might not reach a record-setting storage level as most people expected earlier in the year.”

With the recent price drop, traders might also be looking to establish short hedges as tropical threats to Gulf production remain minimal. Risk managers are looking to protect clients from weakening prices. The failure of any significant storms to enter the Gulf and cause major disruptions to production is the primary driver of lower prices.

“The lack of any significant storms moving into the Gulf is starting to weigh on prices. There has been a lot of hype about the potential for a significant production-disrupting storm, but with the fast-approaching end of hurricane season, the probability of that storm hitting the Gulf is becoming much less,” said Mike DeVooght of DEVO Capital. From a trading standpoint, “we would increase our short winter positions at this time (we will look for rallies approaching the $8.00 level as a selling opportunity),” he said. “We are also going to take a light short position in the summer ’08 strip (5-10%).” DeVooght currently holds a short winter strip at $9, which he would like to increase to 50% of production, and he recently closed out his long November Rockies position between $3.80 and $3.90.

Temperature bulls see short-term weather in their favor. In its most recent six- to 10-day forecast (Oct. 14-18), the National Weather Service shows above-normal temperatures for a large majority of the country, with most coastal areas expected to experience normal temperatures for the time frame. The only exceptions are the coasts of California, Arizona and half of Oregon, which are expected to be below normal.

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