After starting Monday with what appeared to be $9 intentions, September natural gas futures did a 180-degree turn just after noon EDT, plunging 37 cents from its $8.87 high to record an $8.50 trade. However, that level set off the buy alarm as the prompt month climbed back up to settle at $8.684, down 1.6 cents for the day.

“After running up in the morning, it definitely took us a while to get down to $8.50 on the sell-off,” said Tom Saal of Commercial Brokerage Corp. in Miami. “Now it appears it is trying to make a little bit of a comeback.”

Explaining the course of the day, Saal said, “The locals tried to extend it higher, but they couldn’t get any follow-through, so they went to get out of their length and plunged down to the middle of the range. The locals were able to move the market down because there were very few bids until that $8.50 level. Then when they went back to cover their shorts, there were no offers either. Needless to say, the locals got a little chewed up here. The market right now is very illiquid.”

Looking at the pattern over the past few regular sessions, Saal said change could be in the air. “We had a nontrend day Thursday and a neutral day on Friday and Monday,” he said. “I think it is just a matter of time now before we come down. We could be seeing the beginning of a topping pattern.”

Of importance Monday was the fact that natural gas futures diverged from the path of petroleum futures. September crude ran all of the way up to notch a new record at $64/bbl, before settling just a few cents lower at $63.94. Likewise, September heating oil gained 5.82 cents on the day to settle at $1.7894/gallon.

IFR Energy Services’ Tim Evans said Monday that while the petroleum complex finished well, which keeps the upside potential open for more gains on Tuesday, natural gas didn’t follow suit.

“Natural gas has already fallen off the pace here, a reflection of the cooler temperatures in the forecast along with the recent storm tracks, which put Newfoundland at greater risk than the Mississippi Delta,” Evans said. “The market disappointed relative to crude oil and may be ready to roll to the downside on Tuesday if crude oil retreats ahead of Wednesday’s DOE report.”

Late last week the thinking was that crude oil prices would decline as imports increased and gasoline demand would slip as the summer driving season began to wind down. A Bloomberg survey of 52 analysts revealed that 26 said oil prices will fall this week, 18 said prices will rise, and eight said there would be no change.

Currently all of that is on hold. Petroleum prices jumped early Monday as the U.S. closed its embassy in Riyadh, Saudi Arabia in response to threats by militants. In addition, Sunoco shut a crude unit at its 330,000 b/d Philadelphia, PA, refinery after unprocessed oil caught fire Saturday as workers performed maintenance on a valve. Two were injured and the fire was quickly extinguished.

Much of last week’s 81.5-cent advance in September futures may have been the result of short-covering rather than the establishment of new long positions, a more bullish market development. The Commodity Futures Trading Commission (CFTC) reported in its weekly Commitments of Traders report that noncommercials held a net short position (futures only) of 15,797 contracts as of Aug. 2. This is a sharp reduction of the 26,904 net short position of a week earlier.

After former Tropical Depression Nine had been upgraded to Tropical Storm Irene, the National Hurricane Center later in the day downgraded it to a tropical depression. Its projected storm track is likely to take it just west of Bermuda on Saturday.

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