The mid-$2.60s have been a pivotal level for natural gas futuresover the past year. Last November, the December contract managed totrade up to $2.64 — the high price during the “winter thatwasn’t” — before crashing more than a dollar to February lows.Then in July, many market watchers pointed to the August’s abilityto clear the $2.60 level as a harbinger of things to come. OnWednesday once again a line was drawn in the sand at the $2.65level. If the market stays above that level, we can retest thehighs, bull traders insisted. But a settlement below that levelcould spawn a round of selling, countered market bears.

Yesterday the bulls were sent to slaughter. After what is nowbeing called a devastating storage report was released Wednesdaynight the market wasted little time intensifying the sell-off thatbegan last week. The prompt October contract gapped lower at theopen and never looked back yesterday as speculative managed moneytraders exited their long positions en masse. The October contractfinished at $2.471, a 26.6-cent loss for the day.

Sure the storage injection was more than expected, but this isridiculous, lamented a Houston trader who is long physical suppliesfor the month of September. According to the American GasAssociation, 69 Bcf was injected into underground storagefacilities for the week ending Aug. 27, bringing total supplies upto 2,521 Bcf, 151 less than the near-record levels seen this timelast year.

$2.00 futures here we come? Not so fast says one futuresanalyst. “I expect to see some scale down buying at these levels.That, along with the tropical storm threat should keep this thingfrom falling off the map, he reasoned. And he may be right. TheNational Hurricane Center (NHC) Wednesday released new hurricanedata that shows that from 1994 to 1998 September has been thebusiest month for Atlantic hurricanes. According to the NHC, 4tropical storms and 10 hurricanes have occurred in September duringthat 5-year period. Moreover, all but two of the tropical stormstook place between the 8th and the 27th of the month.

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