Sticking to a fairly tight trading range for a second consecutive session, August natural gas futures on Tuesday traded between $4.334 and $4.487 before closing the day at $4.354, down 3.4 cents from Monday's close.
Tuesday's quiet session followed Monday's narrow 10-cent trading range that resulted in a close at $4.388, down 1.4 cents from last Friday's finish (see Daily GPI, July 13). In reading the tea leaves, some market watchers believe that lower prices are ahead, at least in the near term.
"For the last three days natgas has congested just above $4.339 (0.618 of $3.810-5.196). If this level were truly support, the price action should have been repelled higher," said Brian LaRose of United-ICAP. To date that has not happened, and "unless the bulls can produce a sharp, decisive rally and fast, natgas will be headed lower." LaRose contends that $4.106-4.015 is "the only area of contention between here and a test of $3.776."
Traders are still scratching their heads over last week's decline amidst record-setting heat in eastern energy markets. "I think it just shows that there are plenty of people willing to sell this market once it breaks higher," said a New York floor trader. The trader estimated short-term support at $4.15. "We tested down to $4.35 twice last week, and if it breaks through that it should test down to that level. I think we get a small pop in the next day or two and then it is right back down."
If prices are to drop further, the market might have to shrug off additional heat waves, not only this summer but going forward if forecasters are to be believed. In addition to some private forecasters who see the recent warmer-than-normal temperatures lasting into September, climate scientists at Stanford University released a new study this week that claims extended heat waves and higher overall temperatures could become common occurrences in the United States in the next 30 years.
On a more fundamental note, analysts see the market focusing more on anticipated production gains than anticipated warm weather. "The market continues to shrug off some private forecasts for a warmer-than-normal summer as well as a significant Midwest warm-up later this week," said Jim Ritterbusch of Ritterbusch and Associates. He views increased demand resulting from gas-fired power generation as "being more than countered by continued gains in horizontal drilling activity that keep alive the prospect of a significant year-over-year production increase during the current quarter and possibly beyond."
All remains quiet on the tropical storm front in the Atlantic Ocean and the Gulf of Mexico, and meteorologists at AccuWeather.com don't expect that to change for the rest of the week.
Thanks to a large swath of dry air blasting westward off Africa into the Atlantic Ocean and some significant wind shear, AccuWeather.com meteorologist Alex Sosnowski said the tropical Atlantic should remain quiet for "most of, and perhaps all of this week."
He said the same goes for the Gulf of Mexico, due to an area of high pressure nearby, which is expected to suppress shower and thunderstorm activity through at least midweek.
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