With a holiday weekend spent mulling sub-$4.00 natural gas under their belts, traders at the New York Mercantile Exchange wasted little time taking the June contract for one last ride lower Tuesday, as they demoted the prompt month through several levels of support. By virtue of its $3.738 final closing price, the June contract limped off the board with a 23.5-cent loss for the day, resting a whopping $1.203 lower than where it was when it began its tenure as prompt contract at Nymex a month ago.

While some market-watchers anticipated a short-covering bounce to propel prices back above psychological resistance at $4.00, others were hesitant to bet against the downtrend. That controversy was settled early yesterday when the June contract gapped lower at the open and then was unable to attract enough buying support to fill in that gap during the morning hours. Led by fund traders who were already short, sellers took control early in the afternoon — and the rout was on.

According to the latest Commitments of Traders Report released Friday by the Commodity Futures Trading Commission, non-commercial traders increased their net short positions by almost 6,000 during the week ending May 22, bringing their total short exposure to 27,303 positions. Sometimes referred to as “the funds,” because of the disproportionate number of speculative accounts included, non-commercials have been extremely inactive in the natural gas market of late. In fact, not since February of 1999 have they held such a large short position. Historically, they have never accrued more than 40,000 net short positions.

Possibly more compelling than the holdings of the non-commercial segment of the market, however, is the growing net long position held by the commercial traders. According to Tom Saal of Miami-based Pioneer Futures, the 35,373 position increase by the commercial segment of the market last week is the largest in the almost 10-year history of natural gas Commitments of Traders data. As of May 22, commercial traders were net long 12,916 positions.

Looking ahead, all eyes are focused on this afternoon’s release of fresh storage data. For Jay Levine of Advest Futures Inc., the report is expected to be bearish as he looks for the high side of the 90-120 Bcf in market expectations to be realized. If he is correct, the figure will easily surpass last year’s 56 Bcf refill as well as the five-year average build of 75 Bcf. Analysts are quick to note that a injection figure of 92 Bcf or better will completely erase the year-on-year deficit, now in its 69th week.

With support at $4.00 and $3.86 broken, technicians target $3.61 as the next level of potential buying.

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