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Traders Upbeat, Yet August Retreats

August natural gas fell in light, pre-holiday trading as traders still maintained an upward bias but noted that healthy production levels still remain a formidable force for the bulls to counter. At the close August had fallen 6.3 cents to $4.311 and September had slipped 6.3 cents as well to $4.330. August crude oil softened 48 cents to $94.94/bbl.

"I think the market is headed up a little bit," said a New York floor trader. He anticipated the market "coming in a little higher [this] week, and maybe we'll test $4.55. I think you may see some stops at $4.40 to $4.45 and that could push the market to $4.55 or $4.60."

The trader suggested that there might be scale-down buy orders at lower levels but "a few shorts may cover [this] week."

Friday's retreat following Thursday's gains underscores the countervailing forces of a sizable storage deficit and plump production. "We are continuing to emphasize a short-term temperature view that extends toward mid-month that appears about price-neutral. Nonetheless, the complex appears to be scooping up a strong bid off a continued sizable supply deficit against last year that is having difficulty closing as a result of hot temps that approached 100 degrees in northern Illinois [Friday]," said Jim Ritterbusch of Ritterbusch and Associates.

"At the same time, the process of maintaining any upward price momentum is still being challenged by a record production pace that will become more evident within the weekly storage stats if average U.S. temperatures are maintained for any length of time...All in all, we are maintaining a preference for the long side of the market as we can still construct a case for an eventual run at the $5 mark before summer's end."

Weather bulls may have a tough time in the near term. Forecaster Commodity Weather Group (CWG) predicts above-normal temperatures in its six- to 10-day forecast confined to a band from eastern Washington to Four Corners to North Carolina with populous energy markets of the East and Midwest at normal levels.

"A tough call in Chicago [Friday] as nearby clouds could disrupt efforts into the upper 90s, but still a very hot day expected in the central Midwest. The hottest East Coast weather over the next two weeks is still mainly confined to this weekend," said CWG President Matt Rogers. "Some days of above-normal heat are still seen at times [this] week and the following week but not at the same intensities. The hottest weather of the summer so far is still aiming for California and the rest of the West into early to middle [this] week. That should weaken late [this] week and focus mainly to the interior upper West."

The tropical Atlantic is quiet, but the National Hurricane Center at 2:05 p.m. EDT Friday was monitoring tropical waves south of 18N along 63W and 64W and another south of 22N at 84W.

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