Someone pulled the plug on gas futures yesterday, but there’sstill plenty of water left in the tub. The July contract plunged42.5 cents but remained above $4 at $4.063.

August plummeted 40.5 cents to $4.053 during the regular tradingsession and the next six outer-month contracts reached their30-cent daily trading limits to the downside.

After failing on Friday to reach the all-time high of $4.60 by ahair for the third time in the past three weeks, near-month futuresmade a startling turn around on Monday amid relatively unchangedfundamentals other than slightly cooler temperatures in someeastern markets. Further losses in after-hours Access tradingindicate the market still has room to fall, according to someobservers.

“I’m not surprised that this move was 40-something cents,” saidone broker. “But I thought we would get a test of the highs onemore time before we did anything like this.

“It probably will go a little lower,” he added. “It’s lower inAccess. You’ll probably get immediate reaction down because theywere limited down in several of the back months and then you’ll getsome retracement, and bounce up tomorrow,” he predicted.

Because natural gas futures prices are at such extreme heights,there is a noticeable absence of liquidity in the market, whichadds to the volatility, an analyst noted. “You’re at such a highprice, you can move 10% of the volume like this in one day. It’spart of this liquidity problem above $4. If we were at lower levelsthis would have been absorbed by the market.”

The range on the near-month contract was a whopping 40 centswith a top of $4.450 and a bottom at $4.050, or about 1.3 centsless than the July settlement. The outer-months from Septemberthrough February all reached the daily trading limits set by Nymexand posted ranges of between 20 and 30 cents each.

July is now more than 50 cents away from the all-time high for anear-month contract, but “if we get back up there again, we’llprobably take it out,” the broker said. “I still think that’s thecase.”

“It did do one thing it hadn’t done in a while, and that was totake out a prior low, the $4.09 area,” he said, referring to thelow that held on two days last week. “The next downside targetwould be $4 psychologically and the $3.80 area. But I expect it tohold in this range [$3.80-$4.60] until the market perceives there’sno longer a supply problem.”

The Commodity Futures Trading Commission released its Commitmentof Traders report late Friday showing that speculators continued toliquidate their long positions. Natural gas speculators are nowabout 12,696 net long, which is considered relatively neutral basedon the historical correlation between price and speculative tradingpositions.

The weather outlook is mixed right now. Cooler temperaturescurrently in the Northeast may have contributed to the slide,according to some observers, but temperatures actually rose in theMidwest. Temperatures dropped by as much as 16 degrees in parts ofthe Mid-Atlantic region and fell by single digits in many parts ofthe Southeast and Gulf Coast. But temperatures were up by 10degrees or more in several major midwestern cities. And more heatis on the way.

The National Weather Service (NWS) released its latest six- to10-day outlook yesterday, calling for nearly the entire easterntwo-thirds of the country, except the Florida Panhandle and upperNew England, to experience above normal temperatures. The onlybelow normal temperatures are expected over the Pacific Northwestand Northern California. The remaining areas are expected to havenormal temperatures.

The NWS’s new Excessive Heat outlooks show a growing area ofpotential excessive heat over the Midcontinent, Gulf Coast andSoutheast, reaching up into the Midwest and Mid-Atlantic regionseight to 14 days out.

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