The premium built into the natural gas futures market heading into the weekend was quickly dispatched of Monday as the two tropical systems that could endanger Gulf of Mexico production turned into nonevents. The retreat was enhanced after the prompt-month contract broke above $5 for the first time in nearly a month and a half, but failed to hold.
In a wild string of sessions overnight Sunday and Monday that saw the September contract trade in a range of more than 30 cents between $5.007 and $4.681, the prompt-month contract ended up closing the day at $4.701, down 22.2 cents from Friday's finish. It was the first time a front-month contract traded above $5 since June 21.
The tropical wave over the southeast Caribbean on Friday afternoon fizzled over the weekend, while the small area of disturbed weather off the west coast of Africa has developed into Tropical Depression Four, but is expected to harmlessly turn north between the U.S. East Coast and Bermuda this coming weekend.
"Going into the weekend there was an awful lot of uncertainty on the two systems in the tropics, so I think some folks in the market moved to protect themselves under the 'better safe than sorry' approach," said a New York trader. "On Monday the weather picture was a lot clearer, and without any credible threat in the tropics, the helium came out of the market. It also did not hurt that we breached $5 but couldn't extend the gains. That test of resistance -- and failure to remain above -- likely triggered some sells."
Taking a look at the tropics, the fourth tropical depression of the 2010 Atlantic hurricane season formed in the south-central Atlantic Ocean, but its current forecasted track is not expected to jeopardize U.S. interests in the Gulf of Mexico or along the East Coast, according to AccuWeather.com. The forecasting firm noted that conditions are ripe for Tropical Storm Colin to develop over the next 24 hours, before possibly developing into a hurricane as soon as Thursday.
AccuWeather.com meteorologists said they expect the storm to be "near the Leeward Islands on Thursday before turning to the north between the East Coast and Bermuda this weekend, limiting the threat for a potential landfall in the United States."
Directional natural gas futures traders showed a far greater interest in exiting short positions than entering new long trades for the five trading days ending July 27, according to government figures. The Commodity Futures Trading Commission in its weekly Commitments of Traders Report showed that managed money decreased holdings of short futures and options and increased longs during that period.
At IntercontinentalExchange long natural gas futures and options contracts (2,500 MMBtu) fell by 1,478 to 237,309 and shorts rose by 2,876 to 25,135. At the New York Mercantile Exchange long natural gas futures and options contracts (10,000) grew by 6,601 to 140,222 and shorts fell by 11,393 to 185,693. When adjusted for contract size longs increased by 6,232 and shorts declined by 10,674. For the five trading days ended July 27, September futures rose 7 cents to $4.646.
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