The October contract began its reign as the prompt month byfollowing in the footsteps of the freshly expired Septembercontract, and in doing so, added to the declines that have markedthe futures market since the downtrend began on April 8th. Thatleft October down 5.2 cents to $1.664 on Friday, capping a 31.7cent decline for the week.

As expected, October wasted very little time Friday in testingunderlying support at September’s expiration price of $1.672.Sources also pointed to “pathetic” demand in the cash market as acontributing factor to the decline.

A Californian trader feels the current fundamentals do warrantprices dropping to the current level, but he thinks enough isenough. “These are the lowest prices since September of 95 and tothe best of my knowledge winter has not been canceled quite yet. Ifwe get the below normal temps consistent with the La Nina weatherpattern this winter then it won’t take us long to start eating awayat that storage level.”

Looking ahead, Tom Saal of Pioneer Futures in Miami feels themost compelling thing about this decline is that the market hasmade new lows amid a rising open interest figure. To find the lasttime the market managed such a feat, Saal looks back to August,1994 when the September contract was escorted off the board at$1.484 after spiraling 19 cents in its last three trading days.Prices didn’t fair much better that winter, and after a smallrebound in the late autumn of ’94, the market traded back down to$1.323 in the second week of January.

Now the question becomes whether the winter of 1998-99 willrepeat the performance. That remains to be seen, but by looking atweather data from 1994 we find that the month of December wasparticularly mild — averaging nearly 15% warmer than normal asmeasured by degree days heating. That means the weather this winterwill go a long way to determining how long prices remain at thislevel. “Mother nature holds the key,” Saal admitted.

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