Natural gas futures continued its trek lower Monday as traders were forced to pull weather premium out of the market, and technical traders reset support parameters. At the close October futures fell 8.1 cents to $3.800 and November skidded 9.3 cents to $3.916. November crude oil rose 3 cents to $76.52/bbl although more deferred contracts fell.
The tropical Atlantic pales in comparison to the activity of last week. Matthew and Lisa have dissipated and in their place are three tropical systems that have the attention of the National Hurricane Center (NHC). In its 2 p.m. EDT report NHC noted thunderstorms associated with a broad area of low pressure in the northwest Caribbean and gave the system a 40% chance of development into a tropical cyclone in the next 48 hours.
A small area of low pressure 800 miles west of the Cape Verde Islands was estimated to have a "near 0%" chance of development and a remnant of Tropical Depression Julia situated 350 miles southeast of Bermuda was observed moving to the west at 15 mph. NHC said it had a 10% chance of growing into a tropical cyclone in the next 48 hours.
As minor as the tropical systems may seem, traders are keeping a sharp eye out for further developments. "Meteorologists are watching a couple of systems that are developing as we start this new week. There is a depression in the Caribbean threatening to follow in Matthew's footsteps, and the 'conveyor belt' off the West African coast has some disturbances worth watching. At this stage, the horizon is relatively clear, but we need to watch to see what happens or develops next. We are not yet out of the woods and it just takes one," said Peter Beutel, president of Cameron Hanover, in a morning note to clients.
Towards the end of the trading session October futures made a run higher off session lows in what was viewed as an options play. In the last two-and-a-half hours October futures rose from $3.735 to $3.810, and "$3.75 was an options strike price in play, and it looked like traders came in and bought it at the end of the day, but it was not that big a deal," said a New York floor trader.
"I think we'll come off a bit tomorrow, down to $3.67, but I have heard traders talking support at $3.50."
Traders utilizing trend following techniques see potential short sales as long as prices don't advance more than about $1.35. "I think we are in a 'sell the rallies mode.' The trend line still points lower and as long as December doesn't trade above $5.50, the downtrend is intact," said an Oklahoma City trader.
Directional traders made a mass exodus from the short side of the market during the most recent reporting period. The Commodity Futures Trading Commission in its Commitments of Traders Report for Sept. 21 showed managed money making virtually no change to long futures and options holdings but contracting significantly its short position.
At IntercontinentalExchange long futures and options (2,500 MMBtu) rose 17,143 to 331,702 but short futures and options fell by a whopping 84,017 to 101,779. At the New York Mercantile Exchange long holdings (10,000 MMBtu) fell by 4,665 to 140,185 and shorts declined 3,440 to 217,102. When adjusted for contract size long futures and options at both exchanges fell 380 contracts, but shorts were reduced 24,440. For all that trading, spot futures moved relatively little. For the five trading days ended Sept. 21 October futures fell 4.7 cents to $3.919.
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