After trading lower than Thursday’s close for the entire morning Friday, August natural gas futures did a complete reversal in the afternoon. After recording a $5.880 low early in the day and a high of $6.150 late in the session, the prompt month ended up at $6.139, up 4.8 cents on the day, but 20.8 cents lower than the previous week’s close.

The market appears to be waiting for weather — or the lack thereof — to decide price direction. Coming off the week’s heat wave, market experts are waiting to see whether some of that heat will stick around. In addition, any escalation of tropical storm activity will be closely watched.

“I don’t really think there was a whole lot to the late rally Friday,” said Tim Evans, an analyst with Citigroup in New York. “I think there was a little bit of short-term profit-taking Thursday night and then some locals selling it on the opening to see if there was any room lower. Those same locals may have come right back in at the end to cover those trades when the market didn’t break.

“We didn’t get outside of Thursday’s range, which wasn’t all that dramatic of a range anyway. It is also really hard to make a real big deal out of a 4.8-cent gain on the day. It’s better than a decline, but it is not really material here. I think we will see what our weather forecast looks like come Monday and then we will adjust accordingly price-wise.”

Evans said that while the market does appear to be range-trading between the mid-$5s to $6.25, he noted that futures are “coiling up” to the upside within that range. “We’ve got a constructive storage trend, I think. We are drawing down that year-on-five-year average surplus with some regularity here, and we do have some heat in the outlook, which should help us continue to do that. Now we will see how our nerves are once we get a hurricane or two.”

While Tropical Storm Beryl off the East Coast during the week was only the second named storm of the season, Evans warned of what could be ahead. Citing the National Hurricane Center’s climatology studies, the analyst said the peak date for hurricane and tropical storm activity is Sept. 10, “so we really have a way to go before we are out of the woods. We really are not supposed to have storms in June or July, so the peak hurricane threat is definitely still ahead of us.”

Evans said the bottom line is there is an “awful lot” of open interest, so if the market can get some momentum to the upside, there could be an intermediate term of short-covering. “I don’t think people are going to be quick or eager to sell more as we get into the peak hurricane season,” the analyst said. “Would you open a new short position Aug. 15? While that might have been the thing to do back in 2001, most of the time that is not a good percentage play.”

Traders see prices confined to a relatively narrow range. “It looks like the market is range-bound; $5.55 is a solid low and $6.25 is the high. For the moment that is where it looks as though the market is going to stay,” said a New York floor trader.

He suggested that in order for the market to break out of the range, it would “need a fundamental reason. The only thing that would break the market to the downside is if weather conditions stay moderate, and producers decide to come in and aggressively sell. A prolonged heat wave of nine or 10 days would drive the market higher if it attracted end-user buying and not just speculative accounts.”

Weather conditions look to moderate for at least a few days. One week ago weather forecasts were focused on upcoming heat, but the situation is now reversed. “A surge of cool air from the north will penetrate the heat that has gripped the South. This cool air will plunge southward through the weekend reaching central Texas before losing its punch,” says AccuWeather meteorologists David Thomas. He predicts that Little Rock, AR, for instance, would reach 100 degrees Friday and drop to 89 on Saturday. However, Thomas cautioned warmer temperatures will make a comeback early this week.

The tropical weather outlook is also not helpful to the bulls. AccuWeather is tracking tropical waves at 20W (coast of Africa), 44W (central Atlantic Ocean), 57W (east of the Windward Islands), and 85W (western Caribbean). Satellite images show dust wrapped around the wave at 20W, which could cause it to fall apart. “The other waves look too weak and disorganized for development anytime soon. Computer forecasts show no signs of any features developing in the tropical Atlantic within the next few days,” AccuWeather said.

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