Maintaining the downward trend from last week, natural gas futures prices dipped below $6 on Monday in a move many traders did not expect just weeks ago. July natural gas, which expires Wednesday, ended up closing at $5.969, down 25.7 cents on the day.

After breaking below $6 in morning trade, the prompt month rebounded higher. However, the contract broke below the $6 psychological level again late in the session to record a low on the day of $5.960 before settling. The venture below $6 shocked some, especially after the activity of recent weeks. Many industry experts had thought the rally above $7 two weeks ago was a sign that a bottom was in place.

“I don’t know if there is really anything conclusive going on here in the natural gas futures market,” said Tim Evans, an analyst with Citigroup in New York. “While we are seeing plenty of volatility here, I don’t really know what the larger price trend is. It might still be down, because that is what we have largely been doing since last December.

“However, that run to $7.33 on the August contract could make a case for a sideways direction classification,” he said. “If the trend is sideways and we are short-term oversold here, then maybe it is a buy at least for a run back into the middle of the range. I think the locals and the short-term trend followers are having a good time in both directions here, so maybe the thing to do is to just put the front month on a 30-minute bar chart and just play along.”

Evans said the storage situation and storm activity in the Atlantic and Gulf of Mexico continue to hold the fate of natural gas prices going forward. “It seems to be that storage is still real high and that we appear to be on an injection decline path that takes us to a more moderate surplus by the end of the injection season,” Evans said. “I think the idea of a declining surplus is a rational one, because I don’t think anyone out there is really looking to stretch the capacity of working storage to numbers like 3.8-3.9 Tcf. Nobody is playing that game. More likely, I think we will see a number at he end of the injection season in the neighborhood of 3.4-3.5 Tcf, which would still be a record level of storage.”

Evans said the other thing to keep an eye on is the hurricane premium, which is already built into the futures price. “That premium is likely to be declining over the August-September period simply because there will be less of a hurricane season left and the industry will be able to make better judgments on how much production will actually be lost this year,” he said. “We will know a lot more by Labor Day than we do now. While the declining storage surplus is going to be a potential supporting factor, the eventual passage of hurricane season is going to be a significant bearish factor. I don’t know what the hurricane premium number is, but I bet it is fairly substantial.”

The temperature picture remains mixed. The National Weather Service in its six-to-10-day forecast shows above normal temperatures in the West and below normal and normal temperatures in the East and Midwest.

On the tropical front, AccuWeather is following several tropical waves: one at 76 west, south of 20 north; a second at 41 west and 12 north; and a third at 23 west and 10 north. The one at 76 west is tracking west at 10-15 knots, and is causing a few showers and thunderstorms across Puerto Rico and Hispaniola. The wave at 41 west, south of 12 north, is tracking west at 10-15 knots, and although “there area a few thunderstorms along this wave, there are no signs of imminent development at the moment,” the forecaster said. The wave at 23 west is south of the Cape Verde Islands, but “the waters in this area are barely warm enough to consider development possible.”

Interest rates are also getting scrutiny by traders. “What is transporting fear in all markets is what is transpiring in the heart of the interest rate pits,” says Phil Flynn of Alaron in Chicago. In his view, the fear of the Fed sent the 10-year yield to a four-year high and the two-year yield to the highest in four years. These fears played out across the globe as Asia, which is dependent on a strong U.S. economy and a commensurate strong appetite for Asian goods, saw their markets weaken.

“I believe that the rising rate fears are being over blown. I think we will get a huge sigh of relief when the Fed this week does the deed. The suspense in the meantime is killing us. And once the Fed does what it’s going to do, oil and the rest of the commodities will look cheap,” he predicted.

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