Despite rebounding crude values, Tropical Storm Dolly entering the Gulf of Mexico and real heat flooding the Northeastern United States, front-month natural gas futures traded in a tight range on Monday before closing at $10.510, down 6 cents from Friday’s close.

Technically, August natural gas traded between $10.322 and $10.624 on the day, but the contract spent a majority of the time hovering in the $10.40s. The weakness in natural gas continued even as crude — which dropped more than $16/bbl last week — rebounded $2.16 on Monday to close at $131.04/bbl.

Even as much of the Northeast endures scorching summer temps, some industry experts aren’t so sure how bullish of an event it is. “I think part of this is the heat in the Northeast is perhaps less effective in boosting natural gas demand as heat in the South would be,” said Tim Evans, an analyst with Citi Futures Perspective in New York. “It is not the most bullish geographical distribution. The forward outlook looks to be only incrementally supportive with temperatures above normal, but not overwhelmingly. In addition, the nuclear power industry appears to have had its vitamins this summer. They are running at something like 99.5% of capacity. I don’t know how long they can keep that up, but as long as they are running at that rate it will limit the demand for natural gas.”

Evans said the tropical storm situation also has to be taken into account. “The other situation is whether Tropical Storm Dolly really poses that much of a threat. Certainly, it is not expected to track to the mouth of the Mississippi, which would affect a larger volume of natural gas production. At this stage, it looks like she could become a Category 1 or Category 2 storm, but not a major hurricane.”

According to meteorologists at AccuWeather.com, Dolly will intensify as it moves across the open water of the Gulf of Mexico, reaching hurricane strength on Tuesday. Conditions in the Gulf could allow Dolly to reach Category 2 strength, with winds nearing 100 mph, before making landfall on Wednesday near the Texas-Mexico border.

“While the storm will create rough seas in the Gulf, it is expected to steer clear of U.S. oil and natural gas operations,” the forecasting firm said. “There are nearly 4,000 active offshore production platforms in the Gulf of Mexico. However, there is a potential impact on oil and gas rigs in the Bay of Campeche operated by Pemex, Mexico’s national oil company.”

AccuWeather.com noted that Dolly has the potential to be the strongest storm to hit the Rio Grande Valley since Hurricane Beulah slammed into South Texas at Category 5 strength in September 1967. Beulah was blamed for 58 deaths and caused damage of more than a billion dollars.

Evans noted that the current natural gas price level marks a crossroads of sorts. “In the current $10.500 value area, it is really a tough call as to the market’s next move. I can see it $1.50 higher or $1.50 lower from here,” he said. “That is one thing the recent drop in price got us…it created flexibility where the chance of moving higher is more closely balanced with the chance of moving lower because it is all charted territory now. We also have some competing fundamentals right now. On the one hand, the near-term storage outlook does look bearish, but on the other hand we have the peak of hurricane season arriving. I would expect to see some bargain hunting on the belief that the value has fallen too far or that it has fallen far enough.”

On Friday traders didn’t see any storm systems in play, but Dolly may fall right into the hands of willing sellers. “There was nothing that looked likely to disturb Gulf production, but the threat seems to be picking up slightly,” said Mike DeVooght of DEVO Capital Management in his weekly summary. He noted that temperatures in the U.S. are expected to be warmer than normal this week. “On a trade basis, we continue to look for weather-driven rallies for an opportunity to sell some winter gas,” he said in a Monday morning note to clients.

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