September natural gas futures entered its final week of trading on a soft note, as traders suggested the market may move somewhat lower before numerous holders of short positions begin to cover and prompt an eventual market rally.
At settlement September futures fell 5.1 cents to $4.066 and October shed 5.3 cents to $4.084. October crude oil fell 72 cents to $73.10/bbl.
"I see prices possibly falling below $4 overnight. This is where traders want to see the market, right around $4 or maybe a little lower," said John Woods senior trader at MacNamara Options, New York.
He added that "the first time down, say at $3.97 to $3.98 you scoop it up because it is a buy. The one problem with this market is that there are a lot of shorts out there and with contract expiration on Friday you will see some buying coming into this market.
"The back of the board also looks weak and that is putting pressure on the front months. Generally when you see the back of the board slammed, you find support in the front months, but that is just not happening. There are just no storms out there."
As if to underscore the lack of storm activity the National Hurricane Center (NHC) in its 11 a.m. EDT report said Tropical Storm Danielle was located 1025 miles west of the Cape Verde Islands and was moving to the west-northwest at 16 mph. Maximum sustained winds had increased to 65 mph. Danielle was expected to continue strengthening and could become a hurricane this evening. If NHC projections are correct, Danielle will head towards Bermuda.
Analysts see tropical storms as almost a nonfactor. "We did not get a sudden burst of short-covering before the weekend, which is unusual at this time of year, because we are in the heart of tropical storm and hurricane season," said Peter Beutel, president of Cameron Hanover. He noted in his Monday morning report that a tropical storm did form over the weekend.
"It tells us something about the lack of respect this market has been held in recently, especially by the big funds selling this market so aggressively." The temperature outlook along the Eastern Seaboard does not look especially supportive either. "The latest temperature forecasts have been calling for moderate readings, which makes sense -- given the 20 hours of pounding rain we have been through here in the Northeast. This has arrived courtesy of a lingering low that will keep temperatures cooler than usual all week long."
Former bulls were forced to sell. "All factors considered, we are forced to concede to a weak and down trending market as we were forced off of the long side of the Feb. futures today via the price drop to below our suggested $4.68 stop[loss order]," said Jim Ritterbusch of Ritterbusch and Associates. "Next significant chart support this week develops at the $3.80 area per nearby futures, a test of which cannot be ruled out on Thursday. Nonetheless, we still view a $3 handle in this market as unsustainable short of a repeat of last year's exceptionally subdued hurricane season."
Traders on IntercontinentalExchange favored selling last week, according to figures from the Commodity Futures Trading Commission Friday. In its weekly Commitments of Traders Report for the five trading days ended Aug. 17 long natural gas futures and options contracts (2,500 MMBtu) rose 21,525 to 260,120 contracts. Short holdings, however, increased by 45,865 to 66,474.
At the New York Mercantile Exchange both long and short positions contracted with short futures and options (10,000) MMBtu declining by more than 4,000 contracts relative to the reduction in long positions. For the five trading days ended Aug. 17 September futures fell 3 cents to $4.267.
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