After trading in another fairly tight trading range of 15 cents on Tuesday, the August natural gas futures contract ended the regular session up 8 cents at $4.590 as traders monitored warmer-than-normal temperatures and some storm activity in the tropics.
One Washington-DC-based broker told NGI that the "lackluster" natural gas futures market really doesn't have a direction, which surprises him considering some of the fundamentals.
"With a nice extended above-average temperature forecast and a threat of some storm development in the tropics, you would think you would get a gain of more than a dime," he said. "No such luck. There is a whole lot of nothing going on in this market at the moment. We've been sideways, choppy and boring. Anything between $3.800 and $5.200 represents this zone of drift that we've been stuck in for some time."
While allowing that last Thursday's 28-cent jump was a nice sign of life, the broker noted that it really only replaced the losses that had accumulated from a week earlier. "The market seems to have found equilibrium," he added. "On all of my technicals, the momentum gauges are almost exactly in the middle of the range. We've successfully oscillated and have now identified the middle of the range. I think it is going to take a run above $5.200 to mean something. Anything less is just oscillation."
Traders were keeping at least one eye on the tropics as a system north of Puerto Rico showed signs of possible development. According to AccuWeather.com Chief Hurricane Meteorologist Joe Bastardi, a strong tropical wave could develop into the second tropical storm of the season, threatening Florida on Thursday and through the weekend. He noted that the wave could become better organized in the next 48 hours, as it moves into an area more favorable for tropical development.
Bastardi noted that AccuWeather.com is currently focused on two scenarios for the system. The first has the storm developing, crossing Florida early in the weekend and entering the eastern Gulf of Mexico as a weaker system. The second scenario depicts the system moving through the Florida Keys late in the week, developing into a stronger tropical storm or hurricane. Regardless of either scenario, Bastardi said Florida will be impacted first before any effects reach the Gulf.
The forecaster warned that the stars could be aligning. "The weather map on Saturday could be a summer classic," said Bastardi. "A hot shot into the Mid-Atlantic and a tropical system affecting Florida or the Gulf."
Some analysts see the market in need of a tropical threat if it is to match last Thursday's rally. "While some of the market's inability to advance off of a seemingly hot temperature factor appears related to production strength, we also feel that offtake from the industrial sector is likely falling short of most prior expectations," said Jim Ritterbusch of Ritterbusch and Associates.
It is his view that "this market will be heavily reliant upon some injection of storm premium if the price spike of late last week is to be revived. We are maintaining a view that the sharp post-EIA [Energy Information Administration] storage rally of late last week was largely driven by a flurry of fund short-covering and that the large speculators will be slowly easing back into the short side until a significant storm threat develops within the Atlantic."
Forecasters are calling for a slight cooling trend on top of what are expected to be normal to above-normal temperatures in the six- to 10-day period. "This period is the same to slightly cooler overall in the Midwest. Much of the guidance shows a cooldown over the first couple days, which should bring temps to normal, if not briefly below," said forecaster MDA EarthSat.
It noted that most of the same models show warmer trends returning thereafter as the most anomalous upper-level ridging remains over the region. "The Northeast should also cool to normal around mid-period, but persistent ridging should keep the Mid-Atlantic and Southeast above normal through the period. The Northwest was adjusted warmer today to include aboves [normal temperatures], though this change is still in low confidence," it said.
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