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Despite Warm Weather Traders Don Bear Coats

Despite Warm Weather Traders Don Bear Coats

After a volatile three days of seller-dominated trading Tuesday, Wednesday and Thursday last week, the futures market was quiet Friday as light pre-weekend short covering was almost perfectly matched by follow-through selling. The August contract could manage only a 4.5-cent trading range before finishing 0.1 cents higher for the day at $2.163. Estimated volume was relatively modest, with 55,158 contracts changing hands.

A Chicago trader expects more of the same this week when trading resumes. "The market banter is calling for a period of consolidation followed by another move lower to test the $2.06, $2.00 and possibly the $1.95 mark," he said.

"Funds are still long and they are slowly letting the air out of the tires," adds Tom Saal of Miami-based Pioneer Futures. "Only now they have momentum and lack of fundamentals are in their favor. Some people think that because of weather forecasts that continue to call for warm temperatures, prices should stay strong. What they fail to realize is that despite record-setting temperatures last week the best the market could do was trade at index levels. Can it get any hotter than it was [the week before last]?" Saal asked, only half joking.

What about all the talk of decreased production and reduced deliverability? An exaggeration, insists Saal. "The cure for higher prices is higher prices," he quips. Supply has already started to respond to higher prices. Rig counts are up and [Department of Energy] supply figures are starting to look better, he continued.

And Susannah Hardesty of Indiana-based Energy Research & Trading shares his bearish view. She feels that even if support at $2.15 holds initially this week, it will eventually fall by week's end. "Remember, that the overwhelming trend in futures prices is down, during the month of July. Even with the tight injections this spring and this [past] week, the storage situation is currently larger than all prior years since the [American Gas Association] has been keeping data in 1994," Hardesty wrote in Natural Gas Weekly Report dated July 8. Looking ahead, she looks for prices to notch the first bottom of the Summer low on a move between $1.80 and $2.00 sometime before the expiration of the August contract.

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