After rising steadily for much of the session, the natural gas futures market tumbled lower in the last 30 minutes of trading Tuesday as locals rang the register and took profits for the day. At just 45,969, volume was light enough for their selling to make a difference and the October contract closed at $4.661, down 2.4 cents for the session and a dime off its earlier high.

Many traders elected to wait on the sidelines rather than be caught holding a position when the market receives its next fundamental price shock. Looking ahead, bear traders are pinning their hopes on Thursday’s storage report and look for another weekly injection similar to last Thursday’s whopping 97 Bcf refill announcement. Pointing to the combination of cooler temperatures last week coupled with the market’s injection behavior thus far this season, Thomas Driscoll of Lehman Brothers in New York calls for a 100 Bcf injection.

Most refill expectations are centered in the 86-97 Bcf range, which would compare bearishly versus a 69 Bcf build last year and the 76 Bcf five-year average injection. With eight weeks left in the injection cycle, storage is at 2,486 Bcf. At the rate of 64 Bcf/week, storage would reach the 3,000 Bcf “comfort zone” by the start of the withdrawal season Nov. 1.

And while the bears would love to use the storage data as a battering ram to lower prices, there is one thing standing in their way — the uncertainty surrounding the upcoming winter. Specifically, traders have and will continue to be reluctant to short this market until more is known about the severity of the heating season. According to Kyle Cooper of Citigroup, last winter was the sixth coldest in 33 years in the East. “Prices may very well remain supported in the $4.25-50 level prior to the winter due to fear of missing the ‘winter rally,'” he said.

With most private forecasters focusing their efforts on Hurricane Isabel, it is safe to say that long-range forecasts for this winter are still days if not weeks from being released. Until that time, the market will have to take a look at some weather history for a possible indication of what to expect this year. “Will it be as cold as last winter this year?” asks Cooper. ” It sure could be. Actually, three of the five winters colder than last year were 1977, 1978, and 1979. Thus, there is a precedent for a string of cold winters to occur in succession,” he reasoned.

However, even if this winter is marked by below-normal temperatures, Cooper is not convinced storage will be depleted like it was last year. Instead, he hypothesizes that supply has increased and notes that only in 2001 did storage injections surpass the level achieved by the market this summer. “Some may argue that temperatures were very mild this summer. There is again an incredible amount of misperception regarding temperatures and demand. Below normal temperatures in April and May are bullish.”

Cooper goes on to suggest that this summer has been charged as being bearish because of below normal weather that occurred early in the season. Specifically, his research shows that below-normal temperatures prior to June 7 and after Sept. 13 are actually bullish in the East because they necessitate heating demand. “[Our] analysis of temperatures between June 7 and Sept. 13 indicate that temperatures were actually 0.34 degrees above average east of the Rockies during this time frame by our models.” His conclusion is that the large injections this summer are a result of a bearish supply/demand balance rather than bearish temperatures.

Cooper has his money where his mouth is and remains short two November $6.00 calls from an average price of 25 cents. However, he is leery of a winter rally and would therefore cover if the price of these options went to the 7-8 cents level. That call finished at 8.7 cents Tuesday.

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