October natural gas futures traded within a fairly tight 17-cent range Tuesday as the expiring prompt month continued to feel out two-year-old support around the $4.500 level. One day ahead of going off of the board, the contract put in a low of $4.380 before closing at $4.526, up 5.1 cents on the day.

To find a prompt-month trade below $4.380, one would have to look all of the way back to Dec. 9, 2002, when the January 2003 contract put in a $4.290 low. However, a number of market experts still see a support battle with the October 2004 natural gas futures contract’s $4.520 low in mid September 2004. Without a definitive break and settle under the $4.500 level, technicians still see that level as support for near-month futures.

The winter months Tuesday increased slightly more with December 2006 through March 2007 each gaining 9.7 cents to settle between $7.320 and $7.870. With the hurricane season continuing to wind down, traders note that an overly cold winter could be one of the only things capable of turning natural gas futures higher.

“Eyes will start looking towards winter, but even then it will take more than ‘just’ a colder-than-normal winter to turn the tide,” said Jay Levine, a broker with enerjay LLC. He noted that while this past summer was “much warmer/hotter than many give credit,” it wasn’t even enough to stop the slide. “There are signs that this winter will be colder-than-normal…, and charts are grossly oversold, so, regardless of the trend, a bounce should be incorporated whatever your plans. How big and from where is still to be seen.”

Looking nearer term, Levine advised clients to be ready for the October contract’s expiration Wednesday. Noting that expiration day is “always a fun day,” Levine warned of potential price swings as traders get their books in order before October goes off of the board.

Top traders see nothing on the horizon to warrant higher prices and suggest that $3 natural gas — while not likely — is not out of the question. Jim Ritterbusch of Ritterbusch and Associates, said he had problems with “building a scenario that would take the market to a $3 handle,” but he added that prices that low could not be ruled out. “From a longer-term vantage point, this week’s lows in October futures could provide an eventual downside target to the richly priced November futures,” he suggested.

Other analysts also suggest continuing weakness. Mike DeVooght of DEVO Capital said that recent weakness was due to a perception in the producer community of, “I can’t afford to wait, I need to sell it now.”

In spite of the deeply oversold condition of the market, DeVooght said, “This market has come off a long way, and is probably due for some type of bounce, but fundamentally, there is no reason this market cannot work lower in the weeks to come.” He recommended holding on to current positions. End-users should stand aside and producers should continue to hold short October futures at $8.45 as well as 30-50% of 2006-2007 production hedged earlier at $13.95, he said.

Weather bulls may only have to wait a few days for vindication. The Weather Channel said that in the Northeast high temperatures should be in the 60s from central New England down the Appalachian spine into West Virginia. Meanwhile 70s will stretch along the I-95 corridor from Boston to Richmond. “Cooler 50s will be felt across the mountains of Northern New England, and a frost advisory is already in effect for the early morning hours on Wednesday for the Adirondacks and southern Vermont. Look for even cooler temperatures to move into the region by the weekend,” the forecaster said.

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