In sympathy with the largest single-day drop in crude oil prices since the Gulf War, and amid continued fears that a global recession is inevitable, natural gas futures funneled to new 30-month lows Monday, as non-commercial traders extended their short holdings in a market notably devoid of buyers. The October contract was the hardest hit, tumbling 9% or 19.3 cents to close at $1.91. The October contract is set to expire at 2:45 p.m. (EDT) Wednesday, an hour later than other daily settlements this week, in an effort to accommodate the 2:00 p.m. (EDT) release of fresh storage data.

With a dramatic gap-lower open this morning, crude oil futures set the tone for the entire petroleum sector. By noon (EDT) the November crude contract was down 15.5% or $4.00 at $21.97. Heating oil and gasoline futures followed suit, tumbling 10% or more from Friday’s levels. Traders agreed that the price weakness, while not attributable to any one piece of fresh news released over the weekend, was in response to the general weakness in the economy, as well as continued fears that OPEC will not move to reduce output when it meets Wednesday.

Also contributing to the weakness in oil and its related products is the realization that the Bush administration, by releasing evidence linking Osama bin Laden to the hijackings, seeks to wage the battle for international hearts and minds first, further delaying the time table for military action, says Tim Evans of IFR Pegasus of New York.

Sometimes described as a correlation of convenience, the crude-natural gas relationship is a shaky one at best. While the prices of the commodities can move in lock-step at times, this it not always the case, analysts agree. Moreover, most market watchers agree that the natural gas market has come under selling pressure for two reasons: the growing decline in the economy that will curb domestic gas demand, and the plentiful supply levels. At 2,757 Bcf, storage reported by the American Gas Association as of Sept. 14 was well above last year’s comparable 2,325 Bcf level. Looking ahead, that year-on-year surplus is not likely to be erased anytime soon.

“The actual cooling degree day accumulations for last week and their heating counterparts combined, suggest an AGA refill for last week again in the 90-100 Bcf range, outpacing last year’s rate of injection and padding the 432 Bcf year-on-year surplus by another 15-20 Bcf,” added Evans.

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