Natural gas futures trading took a back seat Monday to the wild day of action in the expiring October crude contract, which at one point was trading more than $25 higher than Friday’s close. October crude ended up going off the board at $120.92/bbl, up $16.37, or nearly 16% from Friday’s close, while October natural gas gained 13.7 cents to finish at $7.658/MMBtu.

October crude spiked at the end of the day, jumping to a high of $130/bbl before dropping to close. Traders blamed the massive move in crude on short-covering on expiration day sparked by the government’s $700 billion rescue plan for the U.S. financial markets (see related story). “People see a bailout of that size and it gives them hope for an economic rebound, which would spur demand in the commodities,” said a New York trader. “The fact that it was expiration day for October crude certainly helped to explain why the move was as exaggerated as it was.”

“T’is the season to be buying,” said Tom Saal of Commercial Brokerage Corp. in Miami. “Utilities are looking to get their natural gas needs taken care of ahead of the winter. The prices are fairly low when compared to those of the last eight to nine months and they are a downright bargain compared to where they were just two months ago. As we move forward, we’ll be talking about the winter forecast and the natural gas inventories are probably going to be a little lean over the next few weeks due to shut-ins from hurricanes Gustav and Ike. Due to the shut-ins, we are now experiencing backwardization, where the natural gas cash prices are firmer than the forward spot contract on the futures market. It is normally a bullish sign when people are willing to pay up more for gas now. That should translate into firmer prices down the road.”

Looking at the Market Profile chart from Monday, which shows at what price level a majority of the day’s business was done, Saal said the value area for Tuesday is $7.450 to $7.625. “We should likely test that area on Tuesday before making another move,” he noted.

Over in the crude arena, Saal was stunned by the action. “The value of the U.S. dollar got trashed Monday as the Wall Street shenanigans continued. Historically, when the dollar goes down, commodity prices go up. With this kind of move up in crude, there has to be blood in the streets somewhere. There was definitely a short squeeze. There appear to be two views of this move. Some say it is an aberration and that we’ll crash back to earth on Tuesday, while the other camp says it is the beginning of the next trip up to $150/bbl. Take your pick. However, if the dollar gets weaker, we’re going higher.”

The Commodity Futures Trading Commission (CFTC), as part of its ongoing national crude oil investigation, said it is investigating Monday’s crude trade. “CFTC surveillance and enforcement staff are closely monitoring today’s large movement in the price of crude oil,” said CFTC Acting Chairman Walter Lukken. “We are working closely with Nymex compliance staff to ensure that no one is taking advantage of the current stresses facing our financial marketplace for their own manipulative gain.”

The commission noted that as part of its investigation, enforcement staff can compel testimony, under oath, and the production of information concerning the crude oil markets, including recent crude oil trading.

Stephen J. Obie, acting director of the CFTC’s Division of Enforcement, added, “CFTC enforcement staff will scour today’s trading activity to determine whether anyone engaged in illegal manipulative activity. No one should be trying to game our nation’s commodity futures markets.”

Market watchers also continued to watch the tropics for any sign that the activity level was ramping up once again. “The tropical wave 93L has not developed into anything better organized over the weekend, and while some models still give it a chance to become a hurricane, the expected track would now make it an East Coast storm, leaving natural gas production in the Gulf of Mexico still able to continue its recovery,” said Tim Evans, an analyst with Citi Futures Perspective in New York. “Natural gas may be more conservatively valued right now than the petroleum markets are, but that may not prevent it from grinding lower to become even cheaper.”

Conventional wisdom says natural gas futures are locked in the proverbial “trading range” with a $7 floor and $8 ceiling, but technicians suggest that spot futures would have to close more than $1 higher for the bullish case to gain traction. “Last week natgas proved incapable of either a sell-off or a rally. This ‘stuck in congestion’ mode manifested as a neutral spinning top [candlestick pattern] on the weekly chart,” said Walter Zimmerman of United Energy.

Zimmerman calculates that an $8.600 close would be required (0.236 of $13.694 to $7.023 ) for “a solid case for a bottom.” He added that if that doesn’t happen, then “we will not be able to rule out a further decline to the $6.445-6.110 area. Regarding seasonality, since 1990 the latest arriving seasonal cycle low was on Sept. 27 of 2006.”

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