With Hurricane Emily’s path looking less threatening to a majority of Gulf of Mexico production, August natural gas futures on Monday probed the downside, trading as low as $7.560 before settling at $7.652, down 19.7 cents from Friday.

Despite the fact that Emily’s projected path had shifted a little south to the northeastern Gulf Coast of Mexico, many Gulf producers were still ordering shut-ins and evacuations (see related story). The storm was expected to make landfall in Mexico on Tuesday night or Wednesday morning, approximately 100 miles south of the U.S. border.

In addition to the change in Emily’s path, weakness in the petroleum futures markets also helped natural gas lower on the day. August crude settled 77 cents lower at $57.32/bbl, while August heating oil closed 3.05 cents lower at $1.6316/gallon.

“There is really no reason to be up here trading at these levels. There is also no shortage of natural gas,” said Ed Kennedy of Commercial Brokerage Corp. “It’s very hot in the Southwest and a little above normal in the central portion of the country. It gets hot at this time every year, doesn’t it?” he rhetorically asked.

As for the next move by natural gas futures, Kennedy said he believes it is likely headed lower, but not too much further. “We are going to get another down leg on this move either [Monday night] on Access or early Tuesday, the way things currently look. The question is, how much below $7.50 can we get?” Kennedy asked, noting that technically the level below the current price is from $7.50 to $7.25. “I don’t think we are going to see the $7.25. I have a feeling there is buying to be done down there. I do think we will work a little lower here right away and then we will see what is below $7.50.”

While most U.S. Gulf evacuations are just to be on the safe side, production in the Gulf closer to Mexico could feel more of the impact, especially in lost petroleum production from Mexican fields. Mexico is a major supplier to U.S. refiners. According to a MarketWatch report, Mexico said it had ordered 15,000 workers off rigs in the Campeche Sound fields, where 80% of the country’s crude is produced by the state-owned Pemex oil company, leaving fewer than 1,000 caretakers behind. Two ports expecting bulk shipments from tankers also were closed, it said.

Emily was expected to miss most of the major U.S. oil and natural-gas operations of the Gulf, which provides 25% of the U.S. supply, producing 1.7 million b/d of crude and 12.3 Bcf/d of natural gas.

On Friday after the close of trading, the Commodity Futures Trading Commission in its Commitments of Traders report said that as of July 12, noncommercials held a net short position (futures only) of 20,800 contracts. While this represents a contraction of over 8000 contracts from the week earlier, it still leaves a potential source of additional buying, traders pointed out.

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