Taking a break from the large daily terading ranges of the last few weeks, traders used Tuesday’s session to catch their breath and regroup. After trading within a slim 16-cent range during Tuesday’s regular session, September natural gas ended up closing out the day at $6.861, down 5.2 cents from Monday.
After trading between $6.770 and $6.930, the $6.861 close was the lowest prompt-month settle since July 25, when front-month natural gas closed at $6.409. Trading back under $7 was attributed to seasonal temperatures and tranquil tropics.
“Looking back at the $5.47 low in July, I think we really saw the long-term major low for natural gas futures,” said Craig Coberly, an analyst with Atlanta-based GSC Energy. “From that point, I think the market is set to work higher for a long time. Here in the short term, we have a little correction going on, which will probably stick around for a few more days. However, looking out 10 to14 days I would expect us to be back up in the $8 area.”
Commenting on the market’s current downward price correction, Coberly said he didn’t see futures getting back below $6. “We could have seen the bottom of this correction right here, but I am still holding out for a low of $6.20, or something in that area,” he said.
Top traders see weather and the tropical outlook as offering little for the bulls. “The temperature outlook within the one-to-two-week time window appears about price neutral at best, while the tropical storm forecast remains suggestive of additional evaporation in storm premium,” said Jim Ritterbusch of Ritterbusch and Associates.
Data confirms Ritterbusch’ assessment. The National Weather Service forecasts that for the week ending Aug. 19 the populous energy markets of the East and Midwest will see cooling requirements just nominally above normal. New York, New Jersey and Pennsylvania are expected to see 51 cooling degree days (CDD), or four more than normal, and the industrialized states of Ohio, Indiana, Michigan, Illinois and Wisconsin are forecast to endure 59 CDD, or 13 more than normal.
Tropical weather developments are also not helping the bulls’ case. AccuWeather is following a low pressure system off the Florida coast that “could evolve into a tropical cyclone over the next couple of days, although southwesterly winds aloft are causing some shearing at the moment, which will slow or prevent development.” The forecaster noted that most computer models are indicating that the feature will drift toward the northwest toward the Carolina coast through Thursday before turning to the northeast and out to sea or stalling.
AccuWeather is also following a tropical wave at 67W (eastern Caribbean) and 20N but says it has no chance for development, because “there is sinking dry air over this part of the tropics, as well as strong northerly winds aloft causing wind shear. Another weak wave at 56W (Windward Islands) and 15N is causing some thunderstorms but northerly winds are ripping it apart.”
If Ritterbusch’s assessment is correct, prices may not have much farther to fall. “While this environment has prompted some updated price forecasts for a return to a $5.00 handle, we continue to view a slide to below $6.00 as out of reach as a result of the hot summer,” he contended. The reduction in the supply surplus of more than 35% due to the recent hot temperatures “raises the bar as far as a near-term price floor is concerned.”
Others sense late summer heat might rally prices. “Prices should continue to fade until fresh fundamentals appear,” said Michael Fitzpatrick, analyst at Fimat. “Spillover momentum from the rest of the complex could accelerate, but returning summer heat in the later part of August could just be the spark that ignites fresh buying.”
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