Feeding off Wednesday’s weakness and reflecting fading concernsthat any of the three tropical systems would reach the gas-richGulf of Mexico, the futures market tumbled lower yesterday as bothcommercial and speculative traders exited long positions. Theresultant price slide left the September contract just penniesabove its $2.90 low for the week and turned several bulls intoshort-term bears. The prompt month finished 8.2 cents lower at$2.948 shortly after notching a $2.93 low late in the session.

Thursday’s price erosion came as a surprise to very few traderswho saw the declines as little more than the market readjustingitself following a precipitous move higher this week. “We moved asmuch as 20 cents higher since Monday on the news of the threestorms out there. Now that they have little chance of affecting theGulf, we have moved right back down,” a Texas trader reasoned.

Ed Kennedy of Miami-based Pioneer Futures, who has beenmonitoring the path of Hurricane Dennis for both personal andprofessional reasons since Monday, agreed that the storm turning tothe north (toward the Southeastern U.S.) enabled futures prices toturn south. The downturn, he adds, was exacerbated byoption-related futures selling by writers of $3.00 options who,when the September contract drifted below $2.975, no longer neededfutures contracts to cover their deltas. Looking ahead toexpiration-day activity, he believes that the usual question of whois willing to make or take delivery will ultimately decide the fateof the September contract.

And a Houston risk manager believes he may have an answer tothat question. There are several large marketers that appear to bewilling to take their futures contracts to expiration and takephysical delivery at the hub. That may insulate futures from apossible expiration-day sell-off, despite the record levels of openinterest, he said.

However, at press time last night his prediction looked to be alittle in jeopardy as the September contract spent its last Accesssession by probing 5.1 cents lower to $2.897.

The October contract has support in the upper $2.80s, Kennedysaid.

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