Stemming a string of expiration-day losses at six, natural gas futures eked out a slim gain Friday as traders covered shorts ahead of the weekend and in anticipation of hot weather forecast for this week. The August contract went off the board without much fanfare, up 3.9 cents for the session and 21.2 cents for the week, but down 11.9 cents since it became the prompt contract back on June 27. Estimated volume was modest for an expiration day, with just 92,001 contracts changing hands.

For the first time in recent memory, bulls actually had some fundamental factors in their corner heading into the session Friday. In addition to forecasts calling for hot temperatures across much of the country next week, activity in the tropics is beginning to ramp up, making it a risky proposition to go home for a weekend with a large short position. Although it has been a quiet hurricane season thus far (with only one named tropical storm–Allison), the feeling from trading energy floors across the country is that we are due.

While the frequency of tropical storms increases in July, the most active part of the Atlantic hurricane season runs between August 1 and October 31. According to the historical record kept by the NHC, 740 tropical storm events have taken place during this period, with most occurring in the peak month of September. As of press time Friday, there was no tropical activity, according to the NHC.

After watching August prices dip below and then settle above key psychological support at $3.00 last week, traders polled by NGI were mixed on the question of whether the market has reached a bottom. For some, the large year-on-year storage surplus (currently at 269 Bcf) and the pace of injections is simply too much for prices to have stabilized. However, there are some that believe we have reached a BTU balance, as flat to higher crude and fuel oil prices have come up to meet falling natural gas prices. “Duel fuel burners have undoubtedly shied away from natural gas over the past year,” said a Houston-based risk manager. “Now we are starting to see some of that demand return to the market.” Add to that the potential impact of a U.S. retaliation on Iraq following the attempted downing of a U2 spy plane last week. “You don’t want to be short the hydro-carbon complex when there is the chance of trouble in the Middle East,” he warned.

Notably absent during this expiry, was any sort of options-related volatility, continued a risk manager. “There was good open interest at $3.00 and $3.25. Because we settled well between those two levels, options were never really a factor this month.

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