Due in part to the arrival of new storm activity in the Atlantic Basin, September natural gas on Monday was off to the races, notching a high of $9.84 two separate times just before 1 p.m. EDT. However, the prompt month was unable to match its $9.91 high from two weeks ago and trailed off later in the afternoon.
Despite the late decline, September natural gas was still able to settle at $9.564, recording a 45.3-cent increase over Friday's settle. Monday's spark had traders and analysts alike wondering what the market's next move might be, especially following the weakness displayed late last week.
The National Hurricane Center in Miami late Monday upgraded Tropical Depression 11 to Tropical Storm Jose in the Bay of Campeche, and was tracking disorganized showers from eastern Cuba into the Atlantic and a large tropical wave 350 miles west of the Cape Verde Islands. The NHC said it expects development of these systems to be slow.
"The natural gas market has spiked dramatically higher on the idea that storm activity across the Atlantic Basin will blossom into a more significant threat to production in the Gulf of Mexico, but the petroleum complex looks much less sure of itself," said Tim Evans of IFR Energy Services. "We think this leaves the overall market still within what may be a larger-topping pattern. Lower, secondary highs, or even a minor new high in the case of natural gas, would still leave the markets vulnerable to an intermediate-term or larger degree slide."
Later in the afternoon, Evans noted that natural gas had shed a portion of its earlier gains on "light profit-taking in sympathy with petroleum" and "less than solid confidence" in the storm outlook in the Gulf.
"We'll use a $9.19 sell stop to open a fresh try at a 100% short exposure in October natural gas this time," Evans advised. "A buy stop at $9.51 would limit our initial risk on the trade." He added that the pullback just ahead of the prior cap at $9.91 added to the significance of the resistance there.
Petroleum futures put in a scattered trading day. September crude ultimately settled a dime higher at $65.45/bbl, while September unleaded gasoline and September heating oil closed lower by 4.23 cents and 1.12 cents, respectively, at $1.8616/gallon and $1.8116/gallon.
Natural gas traders looking at the short-term weather outlook didn't find much to support either a bearish or bullish case. The National Weather Service's six-to-10-day outlook covering Aug. 28 through Sep. 1 called for a mixed bag of weather conditions for the U.S. While a majority of the Southeast and Northwest are expected to see below normal temperatures, the Northeast and the entire central portion of the country are still expected to show above normal heat.
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