Rebounding from a weak finish to the previous week, a majority of physical natural gas points around the country on Monday moved higher from a nickel to nearly 15 cents. The cash market might be able to keep the upward momentum rolling for another day if traders are swayed by the futures action Monday, which saw September gas climb 5.7 cents to close the regular session at $2.776.
Outside of a handful of small declines spaced across the country, the day's points posted fairly uniform gains, with no particular region sticking out.
The Henry Hub added 5 cents to average $2.75 and Transco Zone 6 NY tacked on 6 cents to average $2.83, while a little further west, Chicago Citygate added 7 cents to $2.82. In the Rockies, CIG added 7 cents to $2.62 and in California PG&E Citygate gained a nickel to $2.99.
As for the few drops, Tennessee Zone 6 200L declined by 7 cents to average $3.05 and OGT in the Midcontinent came up 7 cents lighter at $2.52. Waha in West Texas dropped 6 cents to average $2.72.
California spots crept higher Monday, but traders really didn't see a reason for any prolonged price strength for the region.
"We came out of the heat wave and now it's just business as usual," a California trader said. "Taking into account that we are nearing the end of August...and the summer for all intents and purposes, there is really not much out there that could boost prices. Storage levels are not a concern, the shoulder season is often very quiet and more and more people are turning attention to winter."
Commenting on current fundamentals and the direction of natural gas futures, IAF Advisors analyst Kyle Cooper said he expects the September contract to notch another weekly low sometime this week.
"For data beginning in 2000, 49 weeks have seen a new low only three weeks in a row. Of those 49 weeks, 32 established another new low in the fourth week," Cooper said in his preview of the week. "Considering the close of $2.719 and the need to only print a $2.684 for a new weekly low, it is again considered likely a new weekly low is in store for the upcoming week."
Cooper added that the Commodity Futures Trading Commission's Commitments of Traders report last Friday indicated another drop in the speculative net long position. While pointing out that total net length has been reduced nearly 40,000 contracts since late July, Cooper added that total open interest did edge back toward 5.3 million contracts as of August 14. That said, he believes long liquidation could lead to further price weakness.
As far as U.S. gas storage situation is concerned, Cooper said the year-on-year and year-on-five-year average surpluses would likely continue the contraction trend of recent weeks, but he warned that price bulls shouldn't get too worked up.
"Relatively large 2011 injections are unlikely to be matched and thus a continued reduction in the storage surplus is expected," he said. "The absolute storage levels remain quite bearish, with current inventories already exceeding the peak levels witnessed between 1992 and 2003. Thus, despite the continued dramatic reduction in the storage surplus and little to no fear of storage containment issues, there is also little doubt that a new record storage level will be established in October or November."
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