After trading in a narrow 10-cent range during Monday's regular session, August natural gas futures closed the quiet day at $4.388, down 1.4 cents from last Friday's finish. However, the serenity might not last as some market watchers see indications that the funds might be mobilizing to sell.

The natural gas market seems to have lost some of its luster in the eyes of funds and managed accounts. The Commodity Futures Trading Commission in its weekly Commitments of Traders report last Friday showed declines in open interest for both natural gas futures and options on both the long and short side of the market, although the contraction was greatest by almost two-to-one by the longs.

For the four trading days ended July 6, IntercontinentalExchange long futures and options (2,500 MMBtu) fell a stout 34,973 to 317,757 contracts and shorts declined by 9,625 to 21,552 contracts. At the New York Mercantile Exchange (10,000 MMBtu) longs dropped 1,786 to 137,141 contracts and holders of shorts shed 3,063 to 191,590 contracts. When adjusted for contract size longs fell 10,529 and shorts skidded 5,469. For the four trading days ended July 6 August futures rose 13.4 cents to $4.682.

Analysts see the week's price action as indicative of funds moving to the short side of the market. "With prices having fallen in the Friday-to-Friday period, we have to expect that managed money accounts may have turned sellers," said Peter Beutel, president of Cameron Hanover. In his view, the activities of swap dealers are more difficult to ascertain, "but we expect that they liquidated long positions. As we start this week, new selling seems a dominant factor," he said.

Citi Futures Perspective analyst Tim Evans said the market is seeing "some quiet summer trade," and added that the push for higher prices doesn't seem to be in place. However, he noted that one well placed storm in the Gulf of Mexico could change all of that.

"The natural gas market has seemingly stabilized after last week's drop, but is in no apparent hurry to probe the upside. Updated temperature forecasts still look constructive, but the lack of a tropical storm threat suggests the Atlantic hurricane season may be slipping behind the pace that would fulfill consensus forecasts for 18-21 named storms. That said, it is really the mid-August to mid-October period that is the busy heart of the season, and so even if the number of named storms ends up being revised lower, substantial hurricane risk still remains."

The weather outlook in the six- to 10- day period is for widespread continued heat but not at the blast furnace level experienced in the East last week. "The models continue to debate details, but they at least agree on widespread seasonal to above-normal temperatures for the U.S. and southern Canada for the upcoming two-week period," said Matt Rogers, president of Commodity Weather Group in Bethesda, MD.

He added that the weather models show "Texas continues to trend drier and hotter this week after the recent onslaught of tropical moisture. The East Coast is trickier this week though with more precipitation chances, but still the likelihood that above-normal temperatures should prevail (next week too). The hottest anomalies are expected from the interior West into the north-central U.S., following the axis of the main hot ridge for this period. The tropics are still very quiet."

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