September natural gas futures pushed lower Friday as follow-through selling continued in the wake of an overanticipated rally. September natural gas traded within a slim 22-cent range Friday before settling at $7.269, down 26 cents on the day but 2.3 cents higher than the previous week’s close.

The futures market on Friday was a lot like most Fridays this summer in that it was pretty quiet,” said Steve Blair, a broker with Rafferty Technical Research in New York. “I think a lot of locals were taking three-day weekends. The direction natural gas futures decides to take from here really depends now on heat and storm development. Hotter than normal temperatures could find their way back into eastern markets this week. In addition to heat, storms could really sway the direction of this market. If we get a real storm brewing, this thing will take off.”

Despite the bullish 12 Bcf withdrawal storage report for the week ended Aug. 4, front-month futures were unable to move higher than the $7.90s earlier in the week as it appeared that the storage draw had already been factored into prices. In a classic example of buy-the-rumor-sell-the-fact, natural gas futures retreated Thursday after the EIA released supply figures. The rare summer withdrawal was on the low side of market expectations ranging from a withdrawal of 10 Bcf to an injection of 7 Bcf. September natural gas dropped 12.2 cents to $7.529 on Thursday.

“The injection number was already priced into the market and it got even more dramatic after the number came out and the locals had the market at $7.80 to $7.85 bid,” said a New York floor trader. He added that there were large funds selling the rally Thursday and the locals got beat up pretty bad. “There were funds trading momentum and breakouts, but the ones that trade more fundamentally off the news were selling the rally with gusto,” he said.

As for the action Friday, enerjay LLC broker Jay Levine said despite current appearances, he is favoring the upside right now. “Natural gas is again stuck in the muck, in spite of [Thursday’s] storage report showing another withdrawal…as summer begins to wind down at the same time hurricane season begins to ramp up,” he said. “I’d be targeting support in [the September contract] starting in the high/mid $7.30s — closer to $7.35 — followed by either side of $7.00.”

Levine said he sees resistance closer to $8.00 to $7.65-7.70, mostly under the premise that future rallies have the potential to quickly hit buy-stops and “blow through” closer resistance points. “Call me crazy…but my fallback plan when it comes to the whole energy complex, notwithstanding any short-term vacillation, remains up,” he said.

Others also see a supportive price environment. “Inventories slipped again for only the second time ever during a summer week,” said Arnold Slesers of Moody’s Economy.com. “Upside pressure on prices remains due to concerns that the surplus of natural gas at the end of the season may be lower than originally expected.”

Bulls counting on weather to bolster their case face a mixed outlook. The National Weather Service’s (NWS) six-to-10-day temperature outlook shows above normal temperatures throughout a vast section of the populous East and Midwest. The greater western portion of the country is expected to see mostly normal temperatures for this time of year except for a warmer than normal pocket along the California coast and below normal temperatures in Oregon and Washington.

The tropical picture is not contributing much. According to AccuWeather meteorologist Chris Stachelski, there are two main reasons the tropical Atlantic would stay quiet over the weekend. “Plenty of dry air is currently covering much of the tropical Atlantic. In addition, the upper-level winds are too strong across many of the prime areas where storms or waves would need to track in order to develop,” he said. Together these two factors create a hostile environment for tropical activity to become organized at all or even develop.

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