Buoyed by triple-digit heat, record-setting power loads, and $7.50 physical prices in the Northeast United States, natural gas futures were fast out of the chute Monday as traders set their sights on a small but unfilled gap left on the daily chart since July 8. Riding that buying wave, the prompt month made an attempt, but ultimately failed, to fill in the $3.08-125 gap completely. Sellers were quick to punish this technical weakness in the noon hour, and market-on-close selling added the final touches Monday afternoon. By its 2:30 p.m. expiry, the August contract had sunk back to $2.976, up 4 cents for the session, but more than 13 cents off its high for the day.

Traders said that the market-on-close selling came from commercial trading accounts who had waited until the close in the hopes their sales would closely approximate the final settlement price, which is calculated by averaging the trades done during the last 30 minutes of trading. During the last 30 minutes of trading Monday, the August contract dipped 12 cents to notch a $2.90 low. The sell-off in futures prices came despite a double-digit gain in Gulf Coast cash prices. After converging on Friday, the cash-futures spread blew out Monday with NGI‘s benchmark Henry Hub price averaging $3.06. Even more compelling were Northeast prices, led by Transco Zone 6 – NYC, which registered a high trade of $7.50 as triple-digit heat baked the Big Apple Monday (see related story this issue).

Looking ahead at trading when September becomes the prompt month Tuesday, traders may be hesitant to push the downside as long as forecasts continue to call for hot temperatures in the eastern half of the country. According to the latest six- to 10-day forecast released Monday by the National Weather Service, above-normal temperatures are expected from the Rockies east clear across the country, with only New England and Florida are predicted to see normal readings. Areas west of the Rockies are also expected to see normal mercury readings, but below-normal temperatures are not in the forecast except for extreme Pacific coastal areas, the NWS said.

However, Tim Evans of IFR Pegasus in New York notes that the weather pattern thus far this summer has featured hot weather, but not the sustained heat that he and other market watchers believe is necessary for prices to mount a protracted rally. “The question here is whether this rally is any more reliable than previous attempts. The weather pattern seems to feature two to three hot days per week, but not the persistent extremes that might limit storage refills to a more bullish pace,” he wrote in a daily note to customers Monday.

Through a quick analysis of last week’s cooling degree days, Evans calls for another 60-70 Bcf storage refill to be made public when the Energy Information Administration releases its weekly storage report Thursday. Last week the EIA said 64 Bcf was pulled from the ground during the week ending July 19. A similar injection report this week would fall in line with the 68 Bcf injection from a year ago, providing little further reduction in the year-on-year surpluse of 334 Bcf.

In daily September technicals, Evans reads resistance at $3.09 ahead of more selling at $3.21, which stands as a 50% retracement of the decline off the June peak and failed support at $3.25. “On the downside, [Monday’s] rally adds even greater importance to the $2.80 floor in prices, with a violation of that support likely to make a strong declaration of the market’s weakness,” Evans added.

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