Futures rebounded from Thursday’s decline on Friday as observers noted buying interest from the end-user community, and saw a bearish price pattern from last year that is not likely to repeat. At the close September had risen 4.8 cents to $3.940 and October was up 4.2 cents to $3.941. September crude oil eased 12 cents to $82.26/bbl.

Analysts are beginning to see buying interest among end-users. “I wouldn’t say it was a rush through the door, but we are beginning to see people taking advantage of pricing when prices are below $4,” said a Chicago banker. “I am also seeing people extending out their hedging horizon. The curve is very flat and people are giving some real thought to doing some business like that [hedging further out].

“It’s not like earlier times when people were very aggressive about laying off risk, but it’s pointing in the right direction. The end-users are probably right that there is very little risk [of sharply higher prices] for the next two years, and it’s not going to be until the second half of the decade when things start to get interesting. There is not the same kind of risk to the upside like there was in 2008 when we were worried about double-digit natural gas, but there still is risk.

“We had a cold winter last year and didn’t have much of a price response, but there is a chance of a cold winter this year, and if the supply-demand balance is just a little bit tighter than last year and we have some early cold, we could see some prices with a $5 handle and theoretically $6 at some point. Low $4 in that kind of environment doesn’t seem that bad.”

The banker noted that producers for the most part were riding out the current low-price environment, “but it wasn’t too long ago that they were active further out on the curve. The back has been relatively soft, so they haven’t been chasing the longer-dated stuff, but it’s just like any market, once any participant gets a little afraid, they are more motivated. Prices have fallen recently; they are starting to get a little nervous, and if we do get an uptick, they might be willing to sell now.”

He added that he had been looking at some historical price relationships between settlement prices comparing the five “winter” months and the seven “summer” months and “we have seen years when the winter contracts have settled below the prior summer because it has been a warm winter with a lot of gas in storage, but we’ve never had it two years in a row. Last year the winter settled below the summer, and right now the winter strip is only about 15 cents above where the settlement prices have been this summer plus September and October futures. If you put a gun to my head, I would be a little bullish for this winter,” he said.

Those without guns to their heads are more likely inclined to forecast lower prices, albeit a slow grind for the bears. “The market absorbed a seemingly bearish storage figure quite well [Thursday] with little net price change on the day,” said Jim Ritterbusch of Ritterbusch and Associates. “In spite of some initial big swings subsequent to the data, the market eventually priced in a near miss of only about 2-3 Bcf while forcing a small dose of storm premium into the fall contracts. Despite [Thursday’s] volatility, we are viewing the fresh lows in the September contract and lowest levels since March per nearest futures as a bearish portent. We are maintaining short-term downside expectations to the $3.75 area while, at the same time, conceding that additional declines will be slow and erratic.”

Tropical Depression 8 on Friday became Tropical Storm Harvey. In its 5 p.m. EDT report the National Hurricane Center (NHC) said Harvey was east of Honduras and was sporting winds of 45 mph. It was moving to the west at 12 mph and NHC projected that it would impact Belize and pass through Central America, possibly re-emerging in the southern Bay of Campeche.

NHC was also following two medium-probability systems in the Atlantic. The first was a large tropical wave about 800 miles east of the Lesser Antilles that had a 40% chance of development from Friday to Sunday, and the second was a broad area of low pressure near the Cape Verde Islands that was becoming better defined. NHC on Friday gave it a 50% chance of developing into a tropical cyclone.

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