With the continued lack of both a hot summer or threatening storms in the tropics, natural gas futures continued lower on Thursday, breaking below recent long-term support lines. After recording a new low for the move of $5.610, August natural gas went on to close at $5.664, down 10.1 cents on the day.

August natural gas futures in Thursday morning trading broke below the $5.750 spot low to carve out a new low of $5.610. The last time front month natural gas futures settled lower than Thursday was on Sept. 27, 2004, when prompt-month natural gas closed at $5.262.

Trading action on the day definitely had a bearish tint as the contract only managed a $5.830 high. Traders managed a small rally off of the $5.610 low, but there was not much room to the upside.

“Natural gas futures look very weak,” said a Washington, DC-based broker. “From a fundamental point, I don’t know if I would want to risk being a seller down here. The substitution of demand for coal starts coming in around $5.00-5.25, so there is really not much on the downside left fundamentally. However, from a technical perspective, if I am a fund, it still looks like a very nice short. Those guys would still be short here.”

The broker noted that this latest wave of selling is being met by a lack of demand from commercial accounts coming in and buying it. “After just talking to a guy who markets to a lot of these commercial accounts, he said many of these people are saying that they have to make up for some of the very high prices they paid as a result of last year’s hurricanes. Those $11 and $12 prices are still on their budgets and they are trying to work them off. If they can get it for 50 cents lower than here, then that starts to save the budget.

“You haven’t had any buying to come in to meet the technical selling, so that keeps the momentum going and it keeps things short,” the broker added. “As simplistic as it sounds, in the supply/demand balance, the sellers have not been met by enough buyers. The buyers are just stepping back at this point.”

Other market experts expect the bottom to form soon. “Natural gas remains under steady selling pressure linked to weak current air conditioning demand. Overall though, we continue to see above average temperatures helping to reduce the big storage surplus, eventually putting a floor under the price,” said Tim Evans, an analyst with Citigroup. “This market remains on course to set a seasonal bottom this month, with short covering ahead of the higher hurricane risk of August and September as the next intermediate-term trend. We’re watching for a bottom to be set and confirmed as a possible buying opportunity.”

Unless supplies are somehow lessened and the industry is able to avoid a storage “train wreck” later in the injection season, prices may find themselves much lower. “We are going to trend lower unless the storage situation is alleviated,” said Kyle Cooper, director of research for IAF Advisors in Houston. “We have much lower to go, unless you see signs of a supply disruption” he said.

Market technicians also suggest lower prices, but see natural gas futures approaching a key technical area. If prices can hold the $5.350 area, then from a technical perspective a rally may occur. However if the $5.350 area is breached, still lower prices may ensue. Technicians find it useful to model market movements in the form of waves, such as Elliott Wave analysis, and are now looking at the current downtrend as a series of such waves which correct the multi-year advance from a market low of $1.020 in January 1992 to last year’s recent post hurricane-inspired high of $15.780 reached December 13.

“The message of this wave count is that this decline from the $15.780 high is correcting the entirety of the advance from $1.020,” said Walter Zimmerman of United Energy. Earlier, Zimmerman said that if futures broke below $5.910 then their next wave-related target would be $5.350. “Should this $5.350 area fail to spark a sustained reversal higher, our next step down targets the $4.830 – $4.770 zone. He added that he sees “no potential support of any consequence between $5.350 and the $4.830 -$ 4.770 area.”

Turning attention to the natural gas storage report Friday between 10:30 a.m. and 10:40 a.m. ET, which is being released a day later than normal due to the Independence Day holiday, most traders appear to be looking for an injection centering around 70 Bcf. The injection reported by the Energy Information Administration (EIA) for the week ended June 30 will be compared to last year’s 70 Bcf build and the five-year average injection for the week of 92 Bcf.

A Reuters survey of 22 industry players is looking for an average injection of 72 Bcf. Golden, CO-based Bentek Energy projects a storage injection of 70 Bcf, resulting in 2,612 Bcf of gas in storage. “This level is 29.1% above the five-year average and 12.5% over the five-year high,” the company said.

The ICAP derivatives auction held after the close of Nymex floor trading Thursday revealed a consensus build expectation of 67 Bcf.

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