Faced with the dilemma of whether to side with bullish longer-term technicals or bearish short-term fundamentals, natural gas traders chose the latter Wednesday as sellers deposited the prompt contract to its lowest point in a week. By finishing the session at $4.927, the September natural gas futures contract lost 11.1 cents on its final trading day, but was up 23.4 cents from the final resting place of the August contract. A year ago the September 2002 contract went off the board at $3.288.

As is the case with any commodity and contract on expiration day, the choice put to traders is at which price are they willing to make or take delivery. For a short period on Wednesday morning, it appeared that there were enough people willing to take delivery of natural gas at a price above the $5.00 mark. However, selling was plentiful at those higher levels and by the afternoon prices with a “4” in front of the decimal place were being bandied about. Market-on-close selling put the nail in the coffin as the September plumbed down to $4.88 at the final bell.

Sources polled by NGI were quick to point to intermediate-term weather outlooks as the factors that turned the tide on prices Wednesday. Continuing its string of price-negative reports the National Weather Service calls for below-normal temperatures for much of the eastern half of the country for the first week of September. The West, meanwhile, will remain hot for that timeframe, as will the southern tips of Florida and Texas.

But not all of Wednesday’s price softness can be explained by mild weather in the East. Short-term technical factors were also at work, adds Tom Saal of Commercial Brokerage Corp. in Miami. “We were getting pretty overbought on the charts. You could see a rally early and then a sell-off down to Fibonacci support at $4.886,” he wrote in a somewhat prophetic note customers Wednesday morning.

And while that bearish prognostication worked yesterday, he questions how much more downside the market has in the intermediate-term. “The average final settlement price of the five months that comprised last years winter strip was roughly $5.60. [Wednesday], the winter of 2003 strip closed at an average price of $5.34. That tells me that we have about 25 cents of upside potential to reach that bogey for winter.

“There exists the strong seasonal tendency for prices to rally after the Labor Day Weekend,” a Washington DC-based broker chipped in. “Prices should continue higher until this winter’s weather is more clearly defined.” She went on to suggest that a good gauge of the market’s upside potential will come from whether her buyers continue to be attracted to prices at or below the $5.00 mark. “It is hard to tell this week because we are so busy with expiration.”

While it may not have a big impact on the longer-term price level, the Energy Information Administration storage report Thursday morning will likely cause some short-term market gyrations. Consensus estimates call for a 70 Bcf refill which would fall between last year’s 58 Bcf analog and last week’s 78 Bcf build.

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