July natural gas continued to trudge lower Tuesday as traders adjusted to moderation in near-term weather forecasts and cited aggressive selling attempting to trigger standing sell orders. At the close July had fallen 6.5 cents to $4.581 and August dropped 6.5 cents as well to $4.613. July crude oil rebounded $2.07 to $99.37/bbl.
"The market is reacting to moderating temperatures, and all the buyers who were trading up to $4.98 before the [injection] number are all getting stopped out a little bit more today than Monday," said Eric Bentley, CEO of VKNG Energy LLC in New York.
He added that he thought traders were "gunning for stops" at $4.57 and looked for the market to make a new low for the week. "The nail in the coffin was the 100 degree temperatures in New York and that ended. We've got all summer for hot weather to play itself out, but the hurricane-type trades have not come to fruition yet."
In another sign of market weakness Bentley said, "We are seeing more of a backwardation in calendar 2013 versus 2012. That differential widened out a bit [Tuesday]. January 2012 and January 2013 traded out a little today. I expect the market to test $4.50 and that may renew interest in the long side."
Mark Ressler, meteorologist at The Weather Channel, said in the near term, eastern energy markets could expect moderate conditions. "The Mid-Atlantic will be dry for the most part under high pressure. With temperatures near average, highs will peak in the 70s and low 80s, but some parts of eastern New England won't get out of the 60s. A few thunderstorms will again pop over northern New York and northern New England Thursday, but the main action will shift into the Mid-Atlantic and western New York as the Midwest storm arrives. Showers and thunderstorms will be on the increase with some one-inch rainfall totals and the threat for severe thunderstorms in parts of Virginia and Maryland."
Farther west the high temperature in Chicago Monday was 71, nine degrees below normal, but forecasters suggest not getting too accustomed to the mild temperatures. Commodity Weather Group in its six- to 10-day outlook predicts a vast area of above- to much-above-normal temperatures extending south and east of a broad arc from Maine to southern Minnesota to West Texas.
"After this week's benign weather in the Midwest and East, another surge of stronger heat is on the agenda starting this weekend and going into next week," said Matt Rogers, president of the firm. Commodity Weather Group increased its prediction for the peak heat for Chicago (Sunday-Tuesday) and the East Coast (Tuesday-Thursday) for the event with mid-to-upper 90s. "Another cool push arrives behind it, arriving into Chicago by day 10 and then getting into the East early to middle 11-15 day. There is a risk that this cooldown could be stronger than our outlook and closer to this week's weather. The returning later 11-15 day heat does not look as strong on the ensembles, but it may be due to a larger spread among the members. The Tropics are quiet with still the chance for weak late-month [storm] development."
Analysts suggest maintaining a bearish posture. "[Monday's] trade reinforced our view that a continued bearish production factor will be forcing this market to quickly respond assertively to even minor adjustments in the temperature views," said Jim Ritterbusch of Ritterbusch and Associates. Ritterbusch concedes that "the market could continue to mark time for a couple of days ahead of another round of storage stats; we will also expect any surprises out of the Energy Information Administration on Thursday to fall toward the bearish side. With this in mind, we suggest holding any existing short August positions established above the $4.80 level."
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