Futures succumbed to another major technical correctionyesterday as the July contract gapped 2.5 cents lower at the openand dropped a dime early on before plummeting after the AGA gasstorage report came out at 2 p.m. At the end of the regular tradingsession, July was down 34.9 cents, August had dropped 35.1 centsand September was off 33.1 cents. The July contract had a 39-centrange for the day, trading as high as $4.335 and as low as $3.930.

It’s a good week to be a New York chiropractor specializing inwhiplash therapy. Near-month futures have yo-yoed in 30-plusincrements twice since Sunday. The volatility has been nothingshort of traumatic.

“I don’t like to trade [on Wednesdays anymore],” said IraHochman of Trot Trading Corp. “When the reports come out, you canget killed either way.”

The American Gas Association reported a higher-than-expectedinjection of 78 Bcf into the nation’s gas storage facilities.Despite being the smallest injection for the week ending June 2 inthe last six years, many observers had been expecting even lessthan 55 Bcf, given the significant lack of incentive to store gasat these price levels.

The 78 Bcf storage injection report apparently “spooked somepeople” because if next week’s report shows another 78 Bcfinjection, it would show a smaller deficit compared to last yearfor only the second time this season, noted Kyle Cooper, futuresresearch energy analyst for Salomon Smith Barney.

“Quite honestly, that injection came in 20 Bcf above what I hadestimated. I was thinking it was going to be 58 Bcf so it shockedme as well. I think it’s the first time that you’ve seen injectionsabove 10 Bcf/d [this season].”

In addition, there were some legitimate questions about whetherprices have run too far ahead of the bullish trend in storage data,said Tim Evans of Pegasus Econometric Group. Speculative funds havebeen actively liquidating their long positions recently. The lastCommitments of Traders report, which came out on Friday, indicatedthe funds had cut back significantly. “To some extent they are justtaking the money and running,” said Evans. Funds were reported tobe sellers yesterday even before the storage data came out.

“The thing is going to go a lot higher, but before it does ithas to build a base,” said Hochman. “They tried testing the highsthe other day (Tuesday), and as soon as they lost day structure itjust collapsed. There’s a double top at $4.55 and $4.50. If webreak through $3.80 that will confirm those tops and we’ll probablypull down to the $3.60 or $3.70 level. We could still pull back to$3.25 and still be good [for another rally]. I mean there’s a lotof wind in this thing.”

From a technical perspective, this market still could go downfurther, Cooper agreed. “We turn sentiment and we could dropanother 50 cents, but that would still be 50 cents above where westarted at the beginning of May,” he noted.

“I think you just have to pick a price level and buy it becauseuntil we see injections that significantly exceed last year, Ithink the winter is highly undervalued. My personal recommendationis to buy December or January and sell June as a spread.Historically the December-June [spread] has gone up to a $1.794.It’s trading in the mid-70 [cents] now.”

The underlying bullish trend in fundamentals has not changed,most observers agreed. At 1,352 Bcf (41% full), working storagelevels are 442 Bcf less than levels at the same time last year and183 Bcf less than the six-year average. Even if the injection pacefor the rest of this season matches that of last year, alower-than-average year, working storage levels still would end theseason at historic lows of 2,500 Bcf. If injections are able toreach the average pace of the past six years, working storagelevels would end the season at 2,750 Bcf, which still would be muchlower than average.

The weakness in prices last week and again this week weretechnical corrections, and Cooper said he expects the July contractto continue down from here to test the $3.80 low of last Thursdayand see if that holds. “Unfortunately the ranges in here are goingto be 20-30 cents. Don’t get in unless you have a tremendoustolerance for pain.” As of 6:50 p.m. in Access trading yesterday,July futures had rebounded 7.5 cents to $4.020.

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