September natural gas ground lower as traders saw no additional risk premium resulting from a strengthening Hurricane Irene and predicted that the market would continue to trade in a narrow range. At the close September futures had fallen 5.1 cents to $3.889 and October had retreated 7.2 cents to $3.869. September crude oil rose $1.86 to $84.12/bbl.

“The market was able to rally about 4 to 5 cents at the end of the day, but basically natural gas is a market that can’t get out of its own way,” said a New York floor trader.

“I expect the market to trade between $3.85 and $4 for the next couple of days. No one is talking about the hurricane, and since it is a couple of days away, maybe that will keep the market from falling out of bed.

“The weather is seasonal and there is nothing to write home about. The main thing that happened today [Monday] was the September went over the October. September moved about 2 cents relative to the October.”

Commodity Weather Group of Bethesda, MD in its six- to 10-day outlook shows above- and much-above-normal temperatures west, south and east of a broad arc extending from Montana to southern Missouri to western New York.

“The storm track up along the Eastern Seaboard complicates the forecast for the start of the six- to 10-day, but otherwise, the main temperature theme today is focused on the continued hot South and interior West,” said Matt Rogers, president. “We get some warmth into the Midwest and East at times in the six-15 day, but no severe sustained heat is expected. The West is expected to start cooling again in the 11-15 day, which could bring more frequent warming back to the Midwest and East for that time frame.”

Rogers noted that Irene became the first hurricane of the 2011 Atlantic season Monday morning. “The favored track is toward the Southeast late this week. The track changes over the weekend have resulted in a lowering of the Gulf production threat to only 5%.” Earlier forecasts had the storm moving up the east coast of Florida, but in its 2 p.m. EDT report the National Hurricane Center showed Hurricane Irene headed north, reaching South Carolina by Saturday. It was 150 miles west-northwest of San Juan, Puerto Rico, and winds were at 80 mph. It was moving to the west-northwest at 12 mph.

Top analysts see the market continuing to trade in a range with the potential to drop to a seasonal low in the month of September. “Considering we have been experiencing record temperatures in many parts of the country and we had a good rally in equities and the oils, the rally in the gas market has not been very impressive,” said Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm.

“We continue to believe the gas market could continue to trade within its long-established range (high $3s to high $4s). We will become more cautious being long (or short puts) as we approach the end of August. A factor to continue to note is that on years when the summer gas market is weak, oftentimes the month of September is not kind. There have been numerous years that major lows are made in September for the October trade month.”

From a trading perspective DeVooght advises both trading accounts and end-users to hold a short option position consisting of September $4.00-4.10 puts. Producers and those with exposure to lower prices should hold September-October $4.50 put options offset by the sale of $5.50 calls at even money for 40% of their position. For November-March DeVooght counsels holding a $4.75 put balanced by the sale of a $7 call for a 16- to 20-cent debit.

Directional traders continue to favor exiting long positions and adding to short holdings, according to government data. In its Commitments of Traders Report for the five days ended Aug. 16, the Commodity Futures Trading Commission showed less exposure to the long side of the market by managed money and greater interest in short futures and options contracts.

At the IntercontinentalExchange long futures and options (2,500 MMBtu per contract) fell by 57,984 to 364,233 and short contracts rose by 4,844 to 161,249. At the New York Mercantile Exchange long futures and options (10,000 MMBtu per contract) rose by 3,341 to 143,531 and short holdings grew by 8,094 to 260,662. For the five trading days ended Aug. 16, September futures fell 6.2 cents to $3.932.

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