September natural gas futures staged a stout 29.1-cent advance Monday to settle at $6.499, and for the moment all concern of bin-busting inventories and low demand have been put on the back burner. The latest government figures show that funds and managed accounts increased their short holdings by more than 20%, thus adding to the overwhelming short holdings (and number of ultimate buyers) of speculative accounts.
“It’s no secret that the market is very, very short, and speculatively the noncommercials have a pretty significant short position,” said George Ellis, a director at BMO Capital Markets in New York. He added that at this time of year it was “traditionally” the time for more tropical storms, and as the storm “chatter increases, it becomes a difficult short to hold on to. I think the vulnerability of the market is to upside moves as a result.”
The Commodity Futures Trading Commission (CFTC) said Friday in its Commitments Of Traders Report that as of July 24 noncommercial accounts held a whopping 71,675 net futures contracts short. A week earlier the CFTC said the net short position held by noncommercials was 59,600. The next report will be released Friday Aug. 3.
Ellis did admit the market fundamentals were saying one thing with the demand being down, and supplies ample if not burdensome. “There’s plenty of supply, but this time of year you have to keep an eye on the tropical weather for a shift in market momentum even if it’s just for a short period of time. The short-term target for that kind of move is $7.25. It’s a retracement point,” he said.
Joe Bastardi of AccuWeather is watching two tropical systems, one at 10N and 45W and the other southwest of the Cape Verde Islands. “While it is prudent to be more vigilant each day this hurricane season given the potential we have, the eyebrow raising wave near 10N and 45W appears to have only a slim hope for a long-term future,” he said. He added that the wave he was watching more intently is the one southwest of the Cape Verdes, and “though it will be void of convection in the next few days, it will be in a position in a few days to undergo the same convergence the wave at 45W has, except it should be further north, which gives it a better chance.”
Traders will also be taking a look at the near term temperature outlook. MDA EarthSat in its Monday morning six- to 10-day forecast calls for above-normal temperatures across a broad swath of the country. “For the first time in several weeks, the models over the weekend maintained and even strengthened warming potential for this six -10 day period,” said Matt Rogers, MDA EarthSat meteorologist. He went on to say the model runs resulted in large coverage of above normals (temperatures) from the East Coast to the Rockies with widespread model agreement. “There were a few runs over the weekend suggesting much above-normal period averages in the Midwest.”
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