With Thursday's supportive storage build even failing to prop up the sagging natural gas futures market, the September contract on Friday was free to probe even lower price levels. September natural gas reached a low of $4.109 before closing the regular session at $4.117, down 5.4 cents from Thursday's finish and 21.1 cents lower than the previous week's close.
Approaching $4 for the first time in three months despite record summer heat, the prompt-month contract has been mostly bearish since reaching a summer high of $5.196 in mid-June. Many market watchers believe a hurricane in the Gulf of Mexico might be the only near-term remedy to low prices (see Daily GPI, Aug. 20).
"When the price run-up sparked by Thursday's news of a bullish 27 Bcf storage build failed to hold five minutes after the number hit the street, I knew this thing was in trouble," said a New York broker. "I think the only thing that is going to shake this market up is if we get a hurricane disrupting the Gulf. If we don't get one soon, I believe we'll see a $4 test sooner rather than later."
While a number of forecasters believe an Atlantic hurricane could form early next week, it does not appear that it will affect the Gulf, much less any U.S. interests, if AccuWeather.com is correct.
"The feature of interest for this development is an area of low pressure to the south of the Cape Verde Islands," said Heather Buchman, a meteorologist with AccuWeather.com. "Historically, the majority of tropical systems that form over this part of the Atlantic Basin in August tend to stay out to sea."
She noted that most storms that have formed in this area in August took a path that curved northward over the western Atlantic, steering well clear of the U.S. "A couple of these storms did, however, graze Bermuda and Newfoundland," she added.
The only storm in AccuWeather.com's study that didn't take this type of path was Hurricane Dean in 2007. Dean took a more westward track, hitting the Lesser Antilles before strengthening into "a monster Category 5" hurricane over the Caribbean that hit the Yucatan Peninsula.
Some traders are looking for further weakness but see an opportunity in more distant contracts. Jim Ritterbusch of Ritterbusch and Associates said he thought most of the selling would be confined to nearby contracts "with the back months acquiring support off of winter weather uncertainties. For now, we are maintaining a suggested long position in the February 2011 futures with stop protection still advised at the $4.68 level," he said.
Traders are having a hard time understanding the September futures contract 6.8-cent decline Thursday to $4.171 when the weekly storage figures came in under expectations. "The number came out at 27 Bcf, lower than the averages, which were around a 31 Bcf build; the market blipped and it was a selling opportunity," said a New York floor trader.
One theory is that given the natural gas supply-demand landscape, there is no reason for even normal trade buyers to establish long hedge positions. "When the market gets this cheap, there isn't an urgency to buy into it or support it," he said. "Traders say, 'I can get it later at a cheaper price' and don't buy. There is not that support and the market can be pushed down more easily."
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