September natural gas futures were unchanged Friday as traders reported that both buyers and sellers were not motivated to take action at current price levels. September ended flat at $3.931 and October had risen 0.6 cent to $3.912. October crude oil gained 7 cents to $85.37/bbl.

“Buyers are anticipating the market will go lower, so no one is buying, but who wants to sell it from here?” queried a Washington, DC-based broker.

He said from a technical standpoint natural gas futures were bounded by a large congestion triangle going back as far as September 2009 when spot futures posted a low of $2.409. From there the market rallied to $6.108 in January 2010, setting up the initial low and high of the triangle.

“There is a problem with the triangle in that you are so deep into the vertex that there is limited capacity for projection. Typically there is a tendency for prices to break in the dominant market trend, which is down.” He pointed out that the maximum market move once a breakout occurs is represented by the difference between the high and low, in this case $3.70. Assuming a downward move, subtracting $3.70 from Friday’s $3.931 settlement give a price objective of just 23 cents, hardly realistic.

“There is a certain amount of replacement cost associated with natural gas, so I would be very surprised if you were able to bring prices much under $3,” he said. “What you might see is a very, very long basing pattern, and at some point prices will go up again when we have problems with crude oil. There are supply issues [now] with crude oil and rising long-term demand, and over a several-year time period that could pull natural gas prices up to $6.”

Oilfield services firm Baker Hughes reported the number of rigs drilling for natural gas hovering not too far below levels of a year ago. For the week ended Aug. 26, Baker Hughes disclosed that the number of gas-directed rigs fell by two to 898, below the 973 operating a year ago. Horizontal rigs rose in number by two to 1,140, well ahead of the 904 a year earlier. The total rigs in the U.S. was one higher at 1,975, above the 1,656 one year ago.

In the short run analysts see a market ready to work lower. Jim Ritterbusch of Ritterbusch and Associates sees “most participants…viewing natural gas as too low-priced to approach from the sell side while fundamentals remain sufficiently bearish to preclude an aggressive incursion into the buy side.” Ritterbusch is looking for “a breakout of this range developing to the downside, [but] such an occurrence is unlikely to be followed by a significant amount of downside price follow-through. We still expect long-term support within the $3.75-3.80 area.”

Weather bulls will be pleased to note that temperature patterns for this week are promising. Commodity Weather Group of Bethesda, MD, in its six- to 10-day forecast, shows above- to much-above-normal temperatures for the entire country with the exception of the northern Plains, Pacific Northwest, California, parts of the desert Southwest and Florida. “The trends for [this] week were again in the hotter direction for especially the Midwest where consistency in the forecast (and faster timing) delivers stronger much-above-normal temperatures (including 90s for Chicago),” said Matt Rogers, president of the firm.

“The heat is forecast to reach the East Coast by late [this] week…The East Coast will also be contending with the aftermath of Irene [this] week, which could also include slow recovery of extensive power outages. Texas is mostly hot over the next two weeks, but there is still some cooler risk in the 11- to 15 [-day forecast]. A Gulf of Mexico tropical development is still possible [for the] Labor Day weekend into the following week, but confidence is very low.”

At 5 p.m. EDT Friday the National Hurricane Center (NHC) said Hurricane Irene was sporting winds of 100 mph and was 265 miles south of Cape Hatteras, NC. It was moving north at 14 mph, and according to NHC, it was expected to hit the North Carolina coast Saturday. Hurricane warnings have been posted as far north as New England

NHC also reported at 5 p.m. EDT Friday that a poorly organized Tropical Depression 10 was continuing to the northwest at 8 mph from its position west of the Cape Verde Islands. Maximum winds were 35 mph and little change in intensity was expected over the next day or so.

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