Futures got crushed again yesterday. After settling at $2.737,down 8.8 cents on the day, the October contract plunged to the mid$2.60s during the after hours Nymex Access trading session,following what was perceived to be a very bearish gas storagereport by the American Gas Association. Just one week ago, theOctober contract reached a high of $3.15/MMBtu.

Futures traders said they found nothing fundamentally yesterdayto prevent the sharp decline: no summer heat, no hurricanes in theproduction area and no recent news to stimulate the gas supplyfears that brought prices to these levels in the first place.

After closing down 14.4 cents to $2.825 Tuesday, the near-monthcontract opened down 5.5 cents Wednesday and took an immediate diveinto the low $2.70s. October flattened out mid-day but thenexperienced another dip before settling. Access seemed to open theflood gates on long positions.

“I didn’t think it would fall this far this fast,” said onefutures trader yesterday evening. “Support is at $2.65. Based onhow fast we’ve come down, it could get into the $2.50s, maybe the$2.55 area given the momentum. The key right now for the continuederosion of price is whether we settle below the 40-day movingaverage at $2.65, which would bring more fund selling into themarket.”

He added that the AGA report of a 69 Bcf injection was wellabove industry expectations of 45 to 55 Bcf, and the market wasalready sliding due to long liquidation. Injections during the sameweek last year totaled only 57 Bcf. One Gulf Coast observerattributed the strong injection to an economic incentive created bythe discrepancy between pipeline cashout prices – some of which arebased on monthly price averages – and end-of-the-month August spotprices. Others said the decline in cooling demand simply left moregas available for injection.

According to the AGA, working gas levels now stand at 2,521 Bcf,which is 151 Bcf less than the same time last year. Theyear-to-year deficit has been reduced from last week’s level of 163Bcf, and storage levels are 85 Bcf higher than the average over thepast five years. In the key Eastern Consuming Region, however,working gas levels are 28 Bcf less than the five-year average and118 Bcf less than the same time last year.

Nymex will close early this Friday at 1 p.m. (EDT) inanticipation of the Labor Day holiday Monday.

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